Bundling post-acute care services into MS-DRG payments.

OBJECTIVE: A bundled hospital payment system that encompasses both acute and post-acute care has been proposed as a means of creating financial incentives in the Medicare fee-for-service system to foster care coordination and to improve the current disorganized system of post care. The objective of this study was to evaluate the statistical stability of alternative designs of a hospital payment system that includes post-acute care services to determine the feasibility of using a combined hospital and post-acute care bundle as a unit of payment. METHODS: The Medicare Severity-Diagnosis Related Groups (MS-DRGs) were subdivided into clinical subclasses that measured a patient's chronic illness burden to test whether a patient's chronic illness burden had a substantial impact on post-acute care expenditures. Using Medicare data the statistical performance of the MS-DRGs with and without the chronic illness subclasses was evaluated across a wide range of post-acute care windows and combinations of post-acute care service bundles using both submitted charges and Medicare payments. RESULTS: The statistical performance of the MS-DRGs as measured by R(2) was consistently better when the chronic illness subclasses are included indicating that MS-DRGs by themselves are an inadequate unit of payment for post-acute care payment bundles. In general, R(2) values increased as the post-acute care window length increased and decreased as more services were added to the post-acute care bundle. DISCUSSION: The study results suggest that it is feasible to develop a payment system that incorporates significant post-acute care services into the MS-DRG inpatient payment bundle. This expansion of the basic DRG payment approach can provide a strong financial incentive for providers to better coordinate care potentially leading to improved efficiency and outcome quality.