The Balanced Budget Act of 1997 means new challenges for those in the respiratory care field.
The Balanced Budget Act of 1997, which restructures the reimbursement system for postacute providers, affects all levels of the postacute industry. The act shifts reimbursement from predominantly a cost-based system to a prospective payment system (PPS). Because Medicare represents 70 percent to 80 percent of the patients receiving care in the different postacute levels of care, this change will dramatically impact the postacute care continuum. HCFA will be using a staggered approach to implementing these changes over the next 3 to 5 years. Different levels of care will move into the PPS era at different times, and existing providers will be transitioned into the PPS system over a 3-year period. As a result, the postacute continuum will face a tumultuous time.
These reimbursement changes will directly impact all levels of ancillary postacute health care services, with significant ramifications for RCPs. Over the past several years, the demand for respiratory services has increased in the postacute levels of care. Therefore, the proposed changes translate to new challenges for RCPs.
Subacute Leads the Way
RCPs can expect to feel the impact of PPS at all levels of postacute. The impact will be greatest, however, on long-term acute care and subacute care. The Department of Health and Human Services (HHS) is still in the early planning stages for reconfiguring the payment system for long-term care. HCFA plans to announce its approach for this postacute service in 1999. The changes for subacute care (also known as skilled or transitional care) are already well under way. As one of the newer members of the postacute care continuum, subacute care should theoretically be the last of the levels to be addressed. HCFA, however, selected subacute for the dubious honor of being first for several reasons, including:
which payment was cost-based. Assuming costs were reasonable, that meant the provider was reimbursed costs for up to 4 years. In addition, the provider was reimbursed 100 percent for capital costs incurred in building or renovating a facility. No wonder there has been a proliferation of new nursing homes and subacute/transitional care units within hospitals.
When Subacute Care Will Be Impacted
Similar to providers, RCPs will feel the impact of the change to PPS as early as this year. Figure 2, page 44, shows that some skilled-care providers moved into PPS as early as July 1998, with the beginning of their fiscal year. By June 1999, all subacute care providers will be under a form of PPS payment.
There are two different PPS implementation approaches. For providers with subacute services less than 3 years old, full PPS will be implemented in 1998. These newer providers will operate under full PPS reimbursement for the start of fiscal year 1998. For the other providers, PPS will transition over a 3-year period, thereby giving them time to adjust to the new payment system. The timing difference between old and new provider status is significant to RCPs. Those working with the newer providers must make rapid changes to accommodate the new payment system. Those aligned with provider services that will transition have time to determine how best to adjust the role of the RCP in this new era of subacute care.
Central to developing the right strategy is a full understanding of how the system works now and what to expect in the future. The differences between the two payment systems are outlined in Figure 3, page 45.
Today the nursing and administrative component is under a fixed reimbursement payment. Ancillary services such as respiratory therapy and rehabilitation, however, are reimbursed at cost. This not only includes the direct cost of the service but also the facility’s overhead costs. There was no cap on the amount of services used. Consequently, the more services provided, the greater the revenue from the service rendered. Because of the fixed costs of nursing, ancillary services like respiratory therapy provided much needed relief for the beleaguered nursing staff.
In addition, having respiratory services available enabled providers to offer more complex pulmonary services such as weaning of ventilator patients and care of patients with tracheotomies. Under the current system, providers other than the nursing home can directly bill HCFA for services rendered in subacute or skilled care. As a result, much of respiratory therapy services were provided and directly billed to HCFA by agencies or hospitals that were providing these services to subacute or skilled patients. The lack of controls on the ancillary services provided the conditions for respiratory therapy to flourish. Therefore, almost all care needed by patients with pulmonary or respiratory conditions is directly provided by RCPs.
New PPS System
The payment rate is all-inclusive under the new system. It covers all services delivered under a relatively fixed-payment rate regardless of frequency and duration of services delivered. Although the providers can subcontract for certain services, they are now responsible for billing all the services. Unlike today, only the hospital-based subacute or nursing home provider will receive direct payment from HCFA. It is important to note that PPS payments will be based on the intensity of resources required. The minimum data set (MDS) will be used to set the plan of care and to define the resource intensity needs of patients. The resource utilization group, third edition (RUGS-III), will form the basis for reimbursement.
The higher the documented intensity needs, the higher the payment will be, but only to a limit. Although payment will be aligned with resource requirements, the rate of payment is still limited. Figure 4, page 45, indicates the highest rate for rehabilitation is $384 a day. Although respiratory therapy is not singled out in these payments, these services most likely would be included under the special care or extensive care categories. In effect, for patients with respiratory therapy needs, payment will range from $177 to $253 a day, depending on severity and location (urban versus rural).
This payment will include both capital costs and the cost of care. Given these parameters, the dollars available to provide care are limited. The current payments for patients with similar conditions are not available because so much of the ancillary services are billed by providers outside the long-term care facility. Based on the author’s experience, however, the cost of care for extensive care patients significantly exceeds even the high end of the payment schedule. As noted previously, implementation will be handled differently for established and new providers (those still in the cost-based period).
For existing providers, the proposed implementation takes place over a 3-year period. In year 1, providers will be paid based on 75 percent of current costs and 25 percent on the new PPS system. In year 2, the mix is 50 percent current and 50 percent PPS. In year 3, the payment is 75 percent PPS and 25 percent cost based. By year 4, the entire payment will be PPS based. There is no transition period for new providers who are still receiving cost-based reimbursement for all costs. They will be on 100 percent PPS reimbursement, starting fiscal year 1998. With no time to adjust to the new payment system, these providers are at high risk financially. It is uncertain how they will weather the dramatic shift in reimbursement.
What to Expect
The change in reimbursement can be expected to impact RCPs in several ways, including:
Riding Out the Storm
The full impact from PPS will not be known until well into 1999. By then, providers will have some sense of how the system works under PPS. RCPs should take the following steps now, however, to maximize their position in this level of postacute care:
1) strengthen the skills of the internal staff; and 2) use an associate level of staff to provide the services in a cost-effective manner for the patient, provider, and therapist.
Frances J. Fowler is president of Fowler Healthcare Affiliates Inc, an Atlanta-based national health care consulting firm.