Understanding Washington: a nephrologist's perspective from inside the Beltway.

The major principles that drive U.S. federal health policy-making are: (1) fixed or reduced costs, (2) ensured outcomes (or no evidence of undertreatment), (3) streamlined administration, and (4) political viability. A corollary is that providers are uniquely sensitive to financial incentives. Understanding these principles is vital to understanding federal health policy. Critically, these principles are nonpartisan and have been supported and used by all administrations since President Reagan. This article examines the end-stage renal disease (ESRD) prospective payment system, colloquially called "The Bundle," in the context of these major principles. Successful health policy, successful legislation, and successful regulation building all require executive leadership, mutual trust, and compromise. This is demonstrated by the events surrounding the passage of the Medicare inpatient prospective payment system, which governs hospital reimbursement for Medicare beneficiaries, including those not covered in the ESRD program. Given that the ESRD benefit consumes 6.3% of the Medicare budget for approximately 2% of Medicare beneficiaries, if nephrology is to experience future success, we must change how both policymakers and the wider field of medicine perceive our specialty. Understanding the major principles behind health care policy may facilitate this goal.

Modernizing Medicaid eligibility criteria for children with significant disabilities: moving from a disabling to an enabling paradigm.

Children with significant disabilities may qualify for Medicaid benefits, regardless of household income, if their state elects to offer the Tax Equity Fiscal Responsibility Act (TEFRA) option. However, a significant number of children with serious medical problems presently are being denied eligibility for, or terminated from, this Medicaid program. This Article describes the ways in which the existing health insurance system inadequately meets the needs of children with significant disabilities, recounts the history and development of the TEFRA Medicaid coverage option, and analyzes the eligibility criteria used by the various states. It proceeds to consider how disability should be legally defined in the health care context and proposes reforms to modernize the eligibility standards so that these benefits can be more effectively, efficiently, and fairly allocated. To accomplish this goal, the federal statute and regulation that define disability, as well as corresponding state laws, must be reformed so that the law can keep pace with advances in modern medical science, and people with disabilities are not, in effect, penalized for receiving currently accepted preventative care that maintains health but will never cure the underlying disease.

Trends in the supply of inpatient rehabilitation facilities services: 1996 to 2004.

OBJECTIVES: Describe the supply of inpatient rehabilitation facilities (IRFs) services in 1996 and examine changes between 1996 and 2004, including the impact of the IRF prospective payment system (PPS) in 2002 on organizational trends. DESIGN: Retrospective pre-post design. SETTING: Freestanding and subprovider (distinct-part units) IRFs. PARTICIPANTS: IRFs (N=1424), including 257 freestanding IRFs and 1167 IRF units reported in the Healthcare Cost Report Information System database, from years 1996 to 2004. INTERVENTIONS: Not applicable. MAIN OUTCOME MEASURES: Number of IRF openings, IRF closures, beds, and inpatient days. RESULTS: The number of IRFs grew from 1037 to 1183 between 1996 and 2001 and grew to 1235 between 2001 and 2004. The likelihood of IRF closures trended lower after PPS, and there was a significant increase in the likelihood of openings when PPS was introduced. For-profit, rural, and small IRFs were more likely to open over the entire period. There was a 12.9% increase in the number of total inpatient days, somewhat less than the 15.7% growth in IRF beds over the period. There was no impact of PPS on beds available but a significant decline in total inpatient days after PPS. CONCLUSIONS: Inpatient days rose under the Tax Equity and Fiscal Responsibility Act and declined after 2002. Yet the likelihood of openings and closures did not appear to respond to these changes, perhaps because they were modest compared with changes in local IRF markets. The IRF PPS did little to affect service distribution in less well-served areas, although we did find growth in rural areas. Occupancy rates in 2004 were close to rates at the start of the period (70%). This observation implies that IRFs were implementing strategies to recruit a sufficient number of patients, even though bed numbers were increasing and length of stay was declining. Consequently, policy that limits the potential of IRFs to increase patient admissions, such as the limits on admissions to IRFs of patients with conditions other than those included in the 75% rule, is likely to produce substantial decreases in total inpatient days.

Trends in Medicare disproportionate share (DSH) distribution in US hospitals: 1996-2003.

Implemented in 1986, Medicare's disproportionate share (DSH) adjustment is intended to recognize hospitals' additional resource investment in caring for low-income patients. This project analyzed changes in the DSH percentage between 1996 and 2003 and examined the association between selected hospital characteristics and such changes. Results obtained revealed some interesting findings. First, minimal changes in DSH percentage occurred during the period 1996-1999 with a hike in that ratio in 2000-2001. However, even with the absence of any legislative or executive changes to the DSH threshold or formula during 2002 and 2003, significant increases occurred during 2001-2003 (11 percent increase between 2001 and 2003). Such an increase may be caused by the nation's economic situation during that timeframe (i.e., more people depending on public programs for coverage).

Hospital swing-bed care in the United States.

As a result of federal legislation implemented in 1982, hospital beds that are used to provide both long-term care and acute care are now proliferating rapidly throughout the country. Termed swing beds, such beds are currently restricted to rural areas. However, due largely to the impacts of Medicare DRG reimbursement, pressure is mounting to expand the swing-bed approach to urban settings. Swing beds appear to fill a significant gap between the relatively intense medical needs of post-acute care patients (now discharged earlier) and the capacity of our current nursing home delivery system to meet such needs. The evolution of swing beds is marked by an unusual blend of experimentation, scientific investigation, and public policy response to community and personal health care needs. This article summarizes that evolution, highlighting research findings and key policy developments. It concludes with the current status of the national swing-bed program and issues pertinent to future directions.

Evaluation of the impact of Medicare and Medicaid prospective payment on utilization of Philadelphia area hospitals.

The article evaluates the impact of Medicare and Medicaid DRG prospective payment on utilization in Philadelphia area hospitals. These hospitals began a combined Medicare-Medicaid DRG prospective payment at the same time after a common cost-based reimbursement history. Particular attention is paid to the hospital-driven as opposed to physician-driven explanations of declining inpatient utilization. The evaluation of the Tax Equity and Fiscal Responsibility Act (TEFRA) and Diagnosis-Related Group (DRG) interventions uses an ARIMA model that removes both seasonal and autoregressive effects. Both TEFRA and the DRG payment system produced significant reductions in average length of stay, total hospital days, and hospital occupancy rates. Neither, however, had a significant effect on admissions. Hospitals with a higher proportion of Medicare and Medicaid discharges reduced their average length of stay more than other facilities. Hospitals with a higher proportion of outpatient visits to inpatient admissions also reduced inpatient length of stay more. Hospitals with higher than expected overall admissions after the introduction of the DRG program tended to have lower than expected average lengths of stay. The results lend support to the "hospital-driven" interpretation of declines in average length of stay. They fail to support the contention that the DRG system will produce automatic counteracting increases in admissions in the system as a whole.

Implications of the Balanced Budget Act of 1997 for general hospital psychiatry inpatient units providing medical and psychiatric services.

Since 1983, the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 has determined payment for services in most psychiatry units located in general hospitals. This system provided reimbursement on a cost-per-discharge basis. In 1997, a Balanced Budget Act (BBA) was passed by Congress which has replaced the TEFRA system of 1982 (H.R 2015). As a result of this law, many general hospital psychiatry units, particularly those that address the needs of elderly patients with high levels of medical comorbidity, will experience a reduction in their reimbursement when compared with the old TEFRA system. This reduction will average 7.8% and affect up to 84% of health care organizations. Those with higher TEFRA target amounts, such as is found with most general hospital programs, will have proportionately greater reductions. This article summarizes legislation affecting Medicare reimbursement and suggests a service reorganization approach that would allow billing to both medical and psychiatric payers. Finally, it encourages active participation in psychiatric access and quality standards development and with legislation, such as The Medicare Psychiatric Hospital Prospective Payment System Act of 1999.

Using prior utilization to determine payments for Medicare enrollees in health maintenance organizations.

The Tax Equity and Fiscal Responsibility Act of 1982 is expected to make it more attractive for health maintenance organizations (HMO's) to participate in the Medicare program on an at-risk basis. Currently, payments to at-risk HMO's are based on a formula known as the adjusted average per capita cost (AAPCC). This article describes the current formula and discusses a modification, based on prior use of Medicare services, that endeavors to more accurately predict risk. Using statistical simulations, formulas incorporating prior use performed better for some types of biased groups than a formula similar to the one currently employed. Major concerns involve the ability to "game the system." The prior-use model is now being tested in an HMO demonstration. This article also outlines the limitations of a prior-use model and areas for future research.

Developing payment refinements and reforms under Medicare for excluded hospitals.

Four classes of specialty hospitals (children's, psychiatric, rehabilitation, and long-term) and two types of distinct-part units in general hospitals (psychiatric and rehabilitation) have been excluded from the Medicare hospital prospective payment system since it was enacted by Congress in 1983. The number of these facilities and the Medicare dollars expended have more than doubled in less than 5 years, prompting renewed policy interest in developing payment reform. In this context, the substantial research and policy development efforts to refine case-mix classification and payment policies for these facilities are reviewed and examined. Findings are discussed relative to possible legislative and regulatory directions.

Medicare risk contracting: determinants of market entry.

The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 made it more attractive for health maintenance organizations (HMOs) and other competitive medical plans to enter into risk contracts with Medicare. Since the start of the TEFRA program in April 1985, more than 160 HMOs have had risk contracts with Medicare under the program. An investigation of factors associated with TEFRA risk-market entry at the end of 1986 revealed that high adjusted average per capita cost payment levels, prior Medicare cost-contract experience, and prior Federal qualification were the most important factors distinguishing market entrants from nonentrants.

Serving rural Medicare risk enrollees: HMOs' decisions, experiences, and future plans.

This article identifies factors that influence health maintenance organizations' (HMOs) decisions about offering a Medicare risk product in rural areas; describes HMOs' recent experiences serving rural Medicare risk enrollees; and assesses the potential impact of Medicare program changes on the future willingness of HMOs to offer a Medicare risk product in rural areas. Data for the analysis were collected through interviews with a national sample of 27 HMOs. The results underscore the importance of adjusted average per capita cost (AAPCC) rates in HMOs' decisions to offer Medicare risk products in rural areas, but also indicate that other factors influence these decisions.

Capitation and the Medicare program: history, issues, and evidence.

This article reviews the history of capitation in the Medicare program and examines issues and research findings related to Medicare capitation. Specific capitation issues and related research findings reviewed include: the feasibility and extent of health maintenance organization participation in Medicare; plan marketing; beneficiary choice behavior; quality of care; and the use and cost of services. In addition, areas requiring further study are noted, and the potential for extensions of capitation under Medicare are explored.

Medicare hospice benefit: early program experiences.

In this article, an overview of the Medicare hospice benefit is presented and selected preliminary findings from the Medicare hospice benefit program evaluation are provided. By mid-1987, about one-half of all community home health agency-based hospices were Medicare certified, compared with about one-fifth of all independent/freestanding hospices and one-seventh of hospital and skilled nursing facility-based hospices. Medicare beneficiary election of the hospice benefit increased from about 2,000 beneficiaries in fiscal year 1984 to about 11,000 during fiscal year 1986. Medicare reimbursed hospices an average of $1,798, $2,078 and $2,337 per patient during fiscal years 1984, 1985, and 1986, respectively.

An analysis of selectivity bias in the Medicare AAPCC (adjusted average per capita cost).

Using econometric models of endogenous sample selection, we examine possible payment bias to Medicare Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) risk health maintenance organizations (HMOs) in the Twin Cities in 1988. We do not find statistically significant evidence of favorable HMO selection. In fact, the sign of the selection term indicates adverse selection into HMOs. This finding is interesting, in view of the fact that three of the five risk HMOs in the study have since converted to non-risk contracts.

S/HMO versus TEFRA HMO enrollees: analysis of expenditures.

This study compares expenditures on health care services for enrollees in a social health maintenance organization (S/HMO) and a Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)-risk Medicare health maintenance organization (HMO). In addition to the traditional Medicare services covered by the TEFRA HMO, the S/HMO provided a long-term care (LTC) benefit and case management services for chronic illness. There do not appear to be any overall savings associated with S/HMO membership, including any savings from substitution of S/HMO-specific services for other, traditional services covered by both the S/HMO and the TEFRA HMO.

Medicaid TEFRA option in Minnesota: implications for patient rights.

This research studied a special-needs population under age 18 who had both private insurance and Medicaid coverage through the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) option. We found that children with managed care plans, particularly health maintenance organizations (HMOs), tended to incur higher total expenses to TEFRA than children with indemnity plans. Our findings also show that managed care in Minnesota tends to provide the same or marginally better coverage as indemnity plans do for core medical items but much less coverage for ancillary items such as home care, therapies, and durable medical equipment.

Excluded facility financial status and options for payment system modification.

Psychiatric, rehabilitation, long-term care, and children's facilities have remained under the reimbursement system established under the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (Public Law 97-248). The number of TEFRA facilities and discharges has been increasing while their average profit rates have been steadily declining. Modifying TEFRA would require either rebasing the target amount or adjusting cost sharing for facilities exceeding their cost target. Based on our simulations of alternative payment systems, we recommend rebasing facilities' target amounts using a 50/50 blend of own costs and national average costs. Cost sharing above the target amount could be increased to include more government sharing of losses.

Economics of hospice care.

As an institution providing care for patients who are dying, hospice has expanded significantly since the opening of the first hospice in the United States in 1974. Many changes have occurred in that time, including the maturation of hospices and the introduction of third-party reimbursement under Medicare. This article examines literature on hospice from an economic perspective; the focus is on the characteristics of the hospice "industry," demand for hospice care, hospice as a supplier of care, and the cost of hospice care. Two major gaps in the research are the failure to categorize hospices by the type of reimbursement received and the emphasis on expenditures for care to the exclusion of consideration of the cost of producing hospice care.

Financial risk, accountability and outcome management: using data to manage and measure clinical performance.

As health care reform and components of managed competition begin to infiltrate the health care system, health care providers will be facing significant challenges over the next several years in responding to priorities that mandate the delivery of appropriate, comprehensive, cost-efficient high quality care. Changes in financial risk, increasing accountability, performance documentation, and outcome measurements will hold providers more responsible for the input and output of services provided. In an effort to respond to these challenges, health care providers will have to rely on integrated data systems to identify opportunities for improvement in an effort to more effectively manage and measure the impact of health care delivery as patients move through the health care system.