The Impact of Reimbursement Issues on Rehabilitation Nursing Practice and Patient Care Barry Ross, MBA MPH RN
Rehabilitation nursing practice and patient care are affected profoundly by reimbursement trends. This article provides a basic understanding of current and proposed reimbursement issues in Medicare, Medicaid, and private insurancw'nformation that should help the rehabilitation nurse make the changes necessary to provide patient care within the constraints of the reimbursement systems. Furthermore, an understanding of these economic issues should assist nurses in working collaboratively and positively with administration while reducing their level of frustration. Nurses can play an important role in managing length of stay, using ancillary services, and moving the patient along the continuumof care,all of which are criticalfinancialfactors in afacility's successful management of its payer mix.
T
he financing of health care shapes what services are provided, who can receive those services, and in which settings services can be rendered. Over the past 10 years, the payer of health care has assumed an increasingly dominant role in the healthcare delivery system. The implications of this trend for rehabilitation nurses are profound. Payers are deciding whether stroke patients should be treated in acute rehabilitation settings or in skilled nursing facilities, how many days a brain injury patient may be in the hospital, and whether the facility can afford an all-RN nursing staff. Given the importance of reimbursement issues, nurses need to be knowledgeableabout the currentrealities and future proposalsfor change. This knowledge will serve to help nurses advocatefor the patient while it reduces their frustration with the current system and promotes collaboration with administration to find the best solutions.After brieflyreviewinghealthcare spendingtrends,this article will focus on the impact of Medicare, Medicaid, and private insurance reimbursement on rehabilitation. Healthcare spending The United States spent $604 billion on health care in 1989, 11.6% of the country's gross national product (Morse, 1991). This is more than 2% times what was spent in 1980 and is more than what is spent on health care by any other nation in the world. Only 44% of this increase was due to inflation in the general economy. Theremainderwas due to increased intensityof service and technology (26%); healthcare inflation, above and beyond the general inflation rate (21%); and changing demographics, such as an increase in the number of elderly (9%). This increase in costs, of course, is having an impact on the federal govemment-so much so that Medicare may go bankrupt by the year 2005. State governments have seen their payable portion of
Address correspondence to Barry Ross, MBA MPH RN,Vice President, Rehabilitation and Behavioral Services, St. Jude Medical Center, 101 E. Valencia Mesa Drive, Fullerton, CA 92635.
Medicaid almost triple in the last 10 years, 'causing budget shortfalls in many states. Employers have seen their costs increase from $66 billion in 1980 to $174 billion in 1990 and are saying they cannot remain profitable (Morse, 1991). In spite of these tremendous expenditures, there still are more than 37 million people who have no healthcare coverage at all. The reduction of costs in health care is the most critical issue facing health services today. The impact of spending by the major payers on hospitals is shown in Figure 1 (Dobson, 1992). Business, particularly small business, is subsidizingthe shortfalls in Medicaid, Medicare, and care for the indigent. Very few payers pay what hospitals charge. Most do not even pay the actual cost of providing the service. Hospitals have strived to change their payer mix to include primarily those offering more favorable reimbursement, thus having a direct effect on the type of patients accepted by these payers and expectations of nursing staff on the part of these payers. The following review of payment for rehabilitation under Medicare, Medicaid, and private insurance and managed care will help the reader understand the impact of these financial issues. Profiling the payers Medicare: While acute rehabilitation services account for only 1.5% of the total Medicare budget, approximately half of the patients in most acute rehabilitation settings are reimbursed by Medicare (National Association of Rehabilitation Facilities [NARF], 1991). This federal program is designed to provide health care to persons who are over 65 or are disabled. Rehabilitation facilities are reimbursed under guidelines from theTaxEquity andFiscalResponsibilityAct of 1982,orTEFRA. This act was supposed to be a temporary transition to the diagnosis-related grouping (DRG) system. However, the TEFRA guidelines have existed in rehabilitation for about 10 years. Rehabilitation facilities are reimbursed at a flat rate for each Medicare discharge, regardless of diagnosis, length of stay, or services required. The hospital receives the same reimbursement whether a patient stays 2 days or 200 days. This reimbursement
236/Sep-Oct 1992Behabilitation Nursinflol. 17, No. 5
is determined using the formula shown in Figure 2. Each year, an update factor is applied to the cost per discharge. Since 1986, updates haverangedfromalow of0.5% toahighof5.5%(NAFS, 1991),whichis significantlybelowtheactualincreaseinhealthcare inflation. The result is that almost half the rehabilitation units in
Figure 1. Hospital Charges, Full Costs, Incremental Costs, and Collections (per Average Day) for a Hypothetical American Hospital
...~...t...y......
I
Incremental
Medicaid Medicare
Big Small Business Business
SelfPay
Areas C and D pay for Areas A, B, and E.
0
Contractual Allowances
Discounts
Actual Collections
Bad Debt
Source Consulted Dobson, A. (1992). Cost shifting:A self-limitingprocess. Washington, DC: Healthcare Financial Management Association.
Figure 2. Medicare Reimbursement Formula Under the Tax Equity and Fiscal Responsibility Act of 1982 Base Year
Cost per Discharge = (Total Unit Costs +Total Patient Days) x No. of Medicare Days Medicare Discharges
the nation are receiving less from Medicare than their cost. Those facilities whose costs are above their TEFRA cap have respondedby attemptingto decreaseMedicare patients’ length of stay, decreasing costs of operating programs, and appealing the level of their cap. Rehabilitation nurses need to know their hospital’s position in relation to this TEFRA cap so that they can respond in constructive ways. If the hospital is losing money on 50% or more of its patients, some solutions are needed. Some facilities have responded to the need for a decreased cost and length of stay by developing rehabilitation-orientedskilled nursing units for preand postacute rehabilitation and developing expanded case management models of nursing care. The future of Medicare reimbursement for rehabilitation is unclear. The Omnibus Budget Reconciliation Act (OBRA) of 1990required the U.S. Secretary of Health and Human Services to report to Congress by 1992 on proposals to modify or replace the current TEFRA system with payments made on nationally determined average standardized amounts. The federal government also is testing payment models that pay one fee for all acute and postacute services provided to a patient. This option, called “bundling,” has not been received positively by providers. One thing is clear: There will be changes in Medicare, and they will result in less money being paid for rehabilitation services. These changes need to be viewed as the government’s way of keeping the Medicare system viable for the future. Medicaid: Medicaid is a healthcare entitlement program designed for individuals below established income levels; it is funded by both federal and state governments. The coverage for acute rehabilitation services by Medicaid varies from state to state. Many states limit the number of days allowed in rehabilitation. Most states reimburse the rehabilitation facility significantly less than the average cost of rehabilitation care. It is important for nurses to be aware of the percentage of patients in the facility who are covered by Medicaid, because the higher the percentage, the greater the financial challenges for the facility. Strict cost control and careful prescreening of patients to ensure medical stability and support after discharge are necessary. As with Medicare, the future of the Medicaid program is unclear; states are grappling with increasing budget deficits that require cuts in service. Nurses should be attuned to whether rehabilitation services are on the cutting block in their state in order to advocate for rehabilitation’s inclusion in covered services, as both a cost-saving measure and a quality-of-life issue. Private insurance/managedcare: The bulk of the population is insured through private insurance plans or health maintenance organizations (HMOs). Private insurance plans have instituted alternative managed care arrangements, such as preferred provider organizations (PPOs), in an effort to contain costs. Insurers in the private sector are under intense pressure from employers to slow the increases in healthcare costs. They have responded by implementing strict utilization review and catastrophic case management programs. Rehabilitation nurses must understand the role of the case manager and work collaboratively to achieve the best outcome for the patient. Often, case managers are nurses who can obtain
Vol. 17, No. S/Rehabilitation NursindSep-Oct 1992/237
Impact of Reimbursement
approval for needed services that can be justified. Regular verbal or written communicationto the case manager about the patient’s progress, significant changes in condition, anticipated length of stay, and dischargeneeds is critical to building a positive relationship between the hospital and case manager. Private insurance companies frequently reimburse hospitals a flat rate per day regardless of the services the patient uses. The rehabilitation nurse can play a key role in the evaluation of ancillary services. If a service is not necessary for the patient’s program or if it can be done on an outpatient basis, it should be evaluated. Recently,some insurance companies began reimbursing facilities at a flat rate per diagnosis. Once again, the rehabilitation nurse can play a key role in ensuring appropriate length of stay and use of services. As private insurance companies are the best payers, most facilities seek to attract an increasingnumber of privately insured patients. Because there often are so many facilities competing for the limited rehabilitation population, nurses should be aware of what these payers look for in a rehabilitation facility. Figure 3 lists some of the major expectations that private insurance carriers hold for rehabilitation facilities. Rehabilitation nurses can play a key role in implementing the changes required in their facilities to meet these expectations. Health maintenance organizations are becoming an increasingly dominant player, enrolling more than 40% of the population in some metropolitan areas (“Data watch,” 1991). These organizations usually have very limited rehabilitation benefits, and many provide acute rehabilitation for only a few diagnoses. HMOs often require approval for any expenditures outside of the basic program. Nurses must ensure good communication with the HMO staff and help educate them whenever possible about the benefits of rehabilitation. Care for the uninsured: Those who have no health coverage are at the mercy of the local community when it comes to whether they will receive rehabilitation services. Some states and cities provide care for indigents, but rehabilitation services may not be a covered benefit. Somefacilities provide free charity care, others do not. As the government develops programs for the uninsured, it is critical that these programs include rehabilitation services.Rehabilitationnurses should advocate stronglyfor such an inclusion.
Nursing’s response The financialrealitiesof the healthcare system presentrehabilitation nurses with many challenges to ensure that rehabilitation services will be available to those who need them. Rehabilitation nurses can take these specific actions to meet these challenges: 1. Keep up to date on changing reimbursement trends, because they affect both nurses and patients. 2. Become knowledgeable about their facility’s payer mix, TEFRA cap, and financial position. . 3. Inform local, state, and federal legislators of the need to include rehabilitation services in all insurance plans. 4. Collaborate with their facility’s administration to control costs, reduce length of stay where required, change practice
Figure 3. What Buyers of Rehabilitation Expect
Compliance with standards of the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) and the Commission on Accreditation of Rehabilitation Facilities (CARF) Demonstrated patient outcomes and quality assurance program Good daily communication among members of rehabilitation team Rapid implementation of customized interdisciplinary treatment plan Little idle time for patients Involvement of case manager: Communication regarding problems and resolution Patient and family satisfaction and involvement Coordination of resources: Availability and appropriate use of continuum of care and community resources Top credentials for staff Good price
patterns, review use of ancillary services, develop a continuum of care, and meet the needs of payers. Rehabilitation nurses can take the lead in creating a climate of support forpositivechange.The holisticviewof patient caremust include the healthcare system of which all rehabilitation nurses are a part. Barry Ross is vice president of rehabilitation and behavioral services at St. Jude Medical Center in Fullerton, CA.
References Data watch. (1991). Hospitals, 65(21), 16-24. Dobson, A. (1992). Cost shifting: A self-limitingprocess. Washington, DC: Healthcare Financial Management Association. Morse, L. (Ed.). (1991). 1990 hospital fact book. Sacramento, CA. California Association of Hospitals and Health Systems. National Association of Rehabilitation Facilities. (1991).NARF issues brief. Washington, DC: Author.
238/Sep-Oct 1992mehabilitation NursingNol. 17, No. 5
Rehabilitation nursing practice and patient care are affected profoundly by reimbursement trends. This article provides a basic understanding of current and proposed reimbursement issues in Medicare, Medicaid, and private insurancw'nformation that should help the rehabilitation nurse make the changes necessary to provide patient care within the constraints of the reimbursement systems. Furthermore, an understanding of these economic issues should assist nurses in working collaboratively and positively with administration while reducing their level of frustration. Nurses can play an important role in managing length of stay, using ancillary services, and moving the patient along the continuumof care,all of which are criticalfinancialfactors in afacility's successful management of its payer mix.
T
he financing of health care shapes what services are provided, who can receive those services, and in which settings services can be rendered. Over the past 10 years, the payer of health care has assumed an increasingly dominant role in the healthcare delivery system. The implications of this trend for rehabilitation nurses are profound. Payers are deciding whether stroke patients should be treated in acute rehabilitation settings or in skilled nursing facilities, how many days a brain injury patient may be in the hospital, and whether the facility can afford an all-RN nursing staff. Given the importance of reimbursement issues, nurses need to be knowledgeableabout the currentrealities and future proposalsfor change. This knowledge will serve to help nurses advocatefor the patient while it reduces their frustration with the current system and promotes collaboration with administration to find the best solutions.After brieflyreviewinghealthcare spendingtrends,this article will focus on the impact of Medicare, Medicaid, and private insurance reimbursement on rehabilitation. Healthcare spending The United States spent $604 billion on health care in 1989, 11.6% of the country's gross national product (Morse, 1991). This is more than 2% times what was spent in 1980 and is more than what is spent on health care by any other nation in the world. Only 44% of this increase was due to inflation in the general economy. Theremainderwas due to increased intensityof service and technology (26%); healthcare inflation, above and beyond the general inflation rate (21%); and changing demographics, such as an increase in the number of elderly (9%). This increase in costs, of course, is having an impact on the federal govemment-so much so that Medicare may go bankrupt by the year 2005. State governments have seen their payable portion of
Address correspondence to Barry Ross, MBA MPH RN,Vice President, Rehabilitation and Behavioral Services, St. Jude Medical Center, 101 E. Valencia Mesa Drive, Fullerton, CA 92635.
Medicaid almost triple in the last 10 years, 'causing budget shortfalls in many states. Employers have seen their costs increase from $66 billion in 1980 to $174 billion in 1990 and are saying they cannot remain profitable (Morse, 1991). In spite of these tremendous expenditures, there still are more than 37 million people who have no healthcare coverage at all. The reduction of costs in health care is the most critical issue facing health services today. The impact of spending by the major payers on hospitals is shown in Figure 1 (Dobson, 1992). Business, particularly small business, is subsidizingthe shortfalls in Medicaid, Medicare, and care for the indigent. Very few payers pay what hospitals charge. Most do not even pay the actual cost of providing the service. Hospitals have strived to change their payer mix to include primarily those offering more favorable reimbursement, thus having a direct effect on the type of patients accepted by these payers and expectations of nursing staff on the part of these payers. The following review of payment for rehabilitation under Medicare, Medicaid, and private insurance and managed care will help the reader understand the impact of these financial issues. Profiling the payers Medicare: While acute rehabilitation services account for only 1.5% of the total Medicare budget, approximately half of the patients in most acute rehabilitation settings are reimbursed by Medicare (National Association of Rehabilitation Facilities [NARF], 1991). This federal program is designed to provide health care to persons who are over 65 or are disabled. Rehabilitation facilities are reimbursed under guidelines from theTaxEquity andFiscalResponsibilityAct of 1982,orTEFRA. This act was supposed to be a temporary transition to the diagnosis-related grouping (DRG) system. However, the TEFRA guidelines have existed in rehabilitation for about 10 years. Rehabilitation facilities are reimbursed at a flat rate for each Medicare discharge, regardless of diagnosis, length of stay, or services required. The hospital receives the same reimbursement whether a patient stays 2 days or 200 days. This reimbursement
236/Sep-Oct 1992Behabilitation Nursinflol. 17, No. 5
is determined using the formula shown in Figure 2. Each year, an update factor is applied to the cost per discharge. Since 1986, updates haverangedfromalow of0.5% toahighof5.5%(NAFS, 1991),whichis significantlybelowtheactualincreaseinhealthcare inflation. The result is that almost half the rehabilitation units in
Figure 1. Hospital Charges, Full Costs, Incremental Costs, and Collections (per Average Day) for a Hypothetical American Hospital
...~...t...y......
I
Incremental
Medicaid Medicare
Big Small Business Business
SelfPay
Areas C and D pay for Areas A, B, and E.
0
Contractual Allowances
Discounts
Actual Collections
Bad Debt
Source Consulted Dobson, A. (1992). Cost shifting:A self-limitingprocess. Washington, DC: Healthcare Financial Management Association.
Figure 2. Medicare Reimbursement Formula Under the Tax Equity and Fiscal Responsibility Act of 1982 Base Year
Cost per Discharge = (Total Unit Costs +Total Patient Days) x No. of Medicare Days Medicare Discharges
the nation are receiving less from Medicare than their cost. Those facilities whose costs are above their TEFRA cap have respondedby attemptingto decreaseMedicare patients’ length of stay, decreasing costs of operating programs, and appealing the level of their cap. Rehabilitation nurses need to know their hospital’s position in relation to this TEFRA cap so that they can respond in constructive ways. If the hospital is losing money on 50% or more of its patients, some solutions are needed. Some facilities have responded to the need for a decreased cost and length of stay by developing rehabilitation-orientedskilled nursing units for preand postacute rehabilitation and developing expanded case management models of nursing care. The future of Medicare reimbursement for rehabilitation is unclear. The Omnibus Budget Reconciliation Act (OBRA) of 1990required the U.S. Secretary of Health and Human Services to report to Congress by 1992 on proposals to modify or replace the current TEFRA system with payments made on nationally determined average standardized amounts. The federal government also is testing payment models that pay one fee for all acute and postacute services provided to a patient. This option, called “bundling,” has not been received positively by providers. One thing is clear: There will be changes in Medicare, and they will result in less money being paid for rehabilitation services. These changes need to be viewed as the government’s way of keeping the Medicare system viable for the future. Medicaid: Medicaid is a healthcare entitlement program designed for individuals below established income levels; it is funded by both federal and state governments. The coverage for acute rehabilitation services by Medicaid varies from state to state. Many states limit the number of days allowed in rehabilitation. Most states reimburse the rehabilitation facility significantly less than the average cost of rehabilitation care. It is important for nurses to be aware of the percentage of patients in the facility who are covered by Medicaid, because the higher the percentage, the greater the financial challenges for the facility. Strict cost control and careful prescreening of patients to ensure medical stability and support after discharge are necessary. As with Medicare, the future of the Medicaid program is unclear; states are grappling with increasing budget deficits that require cuts in service. Nurses should be attuned to whether rehabilitation services are on the cutting block in their state in order to advocate for rehabilitation’s inclusion in covered services, as both a cost-saving measure and a quality-of-life issue. Private insurance/managedcare: The bulk of the population is insured through private insurance plans or health maintenance organizations (HMOs). Private insurance plans have instituted alternative managed care arrangements, such as preferred provider organizations (PPOs), in an effort to contain costs. Insurers in the private sector are under intense pressure from employers to slow the increases in healthcare costs. They have responded by implementing strict utilization review and catastrophic case management programs. Rehabilitation nurses must understand the role of the case manager and work collaboratively to achieve the best outcome for the patient. Often, case managers are nurses who can obtain
Vol. 17, No. S/Rehabilitation NursindSep-Oct 1992/237
Impact of Reimbursement
approval for needed services that can be justified. Regular verbal or written communicationto the case manager about the patient’s progress, significant changes in condition, anticipated length of stay, and dischargeneeds is critical to building a positive relationship between the hospital and case manager. Private insurance companies frequently reimburse hospitals a flat rate per day regardless of the services the patient uses. The rehabilitation nurse can play a key role in the evaluation of ancillary services. If a service is not necessary for the patient’s program or if it can be done on an outpatient basis, it should be evaluated. Recently,some insurance companies began reimbursing facilities at a flat rate per diagnosis. Once again, the rehabilitation nurse can play a key role in ensuring appropriate length of stay and use of services. As private insurance companies are the best payers, most facilities seek to attract an increasingnumber of privately insured patients. Because there often are so many facilities competing for the limited rehabilitation population, nurses should be aware of what these payers look for in a rehabilitation facility. Figure 3 lists some of the major expectations that private insurance carriers hold for rehabilitation facilities. Rehabilitation nurses can play a key role in implementing the changes required in their facilities to meet these expectations. Health maintenance organizations are becoming an increasingly dominant player, enrolling more than 40% of the population in some metropolitan areas (“Data watch,” 1991). These organizations usually have very limited rehabilitation benefits, and many provide acute rehabilitation for only a few diagnoses. HMOs often require approval for any expenditures outside of the basic program. Nurses must ensure good communication with the HMO staff and help educate them whenever possible about the benefits of rehabilitation. Care for the uninsured: Those who have no health coverage are at the mercy of the local community when it comes to whether they will receive rehabilitation services. Some states and cities provide care for indigents, but rehabilitation services may not be a covered benefit. Somefacilities provide free charity care, others do not. As the government develops programs for the uninsured, it is critical that these programs include rehabilitation services.Rehabilitationnurses should advocate stronglyfor such an inclusion.
Nursing’s response The financialrealitiesof the healthcare system presentrehabilitation nurses with many challenges to ensure that rehabilitation services will be available to those who need them. Rehabilitation nurses can take these specific actions to meet these challenges: 1. Keep up to date on changing reimbursement trends, because they affect both nurses and patients. 2. Become knowledgeable about their facility’s payer mix, TEFRA cap, and financial position. . 3. Inform local, state, and federal legislators of the need to include rehabilitation services in all insurance plans. 4. Collaborate with their facility’s administration to control costs, reduce length of stay where required, change practice
Figure 3. What Buyers of Rehabilitation Expect
Compliance with standards of the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) and the Commission on Accreditation of Rehabilitation Facilities (CARF) Demonstrated patient outcomes and quality assurance program Good daily communication among members of rehabilitation team Rapid implementation of customized interdisciplinary treatment plan Little idle time for patients Involvement of case manager: Communication regarding problems and resolution Patient and family satisfaction and involvement Coordination of resources: Availability and appropriate use of continuum of care and community resources Top credentials for staff Good price
patterns, review use of ancillary services, develop a continuum of care, and meet the needs of payers. Rehabilitation nurses can take the lead in creating a climate of support forpositivechange.The holisticviewof patient caremust include the healthcare system of which all rehabilitation nurses are a part. Barry Ross is vice president of rehabilitation and behavioral services at St. Jude Medical Center in Fullerton, CA.
References Data watch. (1991). Hospitals, 65(21), 16-24. Dobson, A. (1992). Cost shifting: A self-limitingprocess. Washington, DC: Healthcare Financial Management Association. Morse, L. (Ed.). (1991). 1990 hospital fact book. Sacramento, CA. California Association of Hospitals and Health Systems. National Association of Rehabilitation Facilities. (1991).NARF issues brief. Washington, DC: Author.
238/Sep-Oct 1992mehabilitation NursingNol. 17, No. 5
