George Grob

Deputy Inspector General

for Evaluation and Inspections

Effects of the Prospective Payment System on Access to Skilled Nursing Facilities for Patients

with End-Stage Renal Disease (OEI-02-99-00402)

Kathleen Buto

Deputy Director, Center for Health Plans 

and Providers, HCFA 
In response to requests from your staff, the Office of Inspector General (OIG) has conducted 
an analysis of the potential effects of the prospective payment system on access to skilled 
nursing facilities for patients with end-stage renal disease (ESRD).  This analysis supplements 
an earlier report entitled, Early Effects of the Prospective Payment System on Access to Skilled 
Nursing Facilities, OEI-02-99-00400, where one of the findings included dialysis patients as 
among those more difficult to place. 
Background 
The Health Care Financing Administration asked OIG to assess whether the new prospective 
payment system for skilled nursing facilities (SNFs) is causing access problems for Medicare 
beneficiaries.  To answer this question, we contacted a random sample of hospital discharge 
planners who are responsible for coordinating nursing home care for patients being discharged 
from hospitals.  We asked them about their ability to place Medicare patients in nursing homes 
and about changes in nursing home admissions practices.  We also examined Medicare data 
related to SNF discharges and hospital length of stay. 
Our analysis showed that so far, there are no serious problems in placing Medicare patients in 
nursing homes.  Generally, discharge planners report that they can place Medicare patients in 
nursing homes.  Medicare data also confirm that there are no changes in nursing home 
placements for Medicare patients.  However, discharge planners also report that nursing homes 
are changing their admissions practices in response to the prospective payment system. 
Specifically, they note that patients who need extensive services have become more difficult to 
place, including ESRD patients who have high transportation costs because of their need for 
dialysis.  We also found that patients who need rehabilitation services have become easier to 
place. 
After reviewing these findings, your staff asked us to look at any early effects of the 
prospective payment system on access to SNFs for ESRD patients.  In response, we selected a 
20 percent sample of all Medicare beneficiaries from the Medicare National Claims History File 
and reviewed data for patients who had a discharge diagnosis for renal failure (DRG 316) or  for renal dialysis (DRG 317), or who had been in the hospital for other reasons and had end-
stage renal disease.  These patients are referred to as ESRD patients for the purposes of this 
analysis. We analyzed discharge patterns and hospital length of stay data for ESRD patients for 
the first 5 months in 1998 and the same 5 months in 1999.  Our sample included 3,384 ESRD 
patients who were discharged to SNFs during this time period in 1998 and 3,981 ESRD 
patients who were discharged to SNFs in 1999. 
FINDINGS 
Changes in discharge patterns to SNFs and length of hospital stays for end-
stage renal disease patients are small. 
Medicare data show small changes in the overall proportion of discharges to SNFs for ESRD 
patients.  This proportion increased slightly from 11.2 percent in the first 5 months in 1998, 
which is prior to the implementation of the prospective payment system, to 11.9 percent in the 
same 5 months in 1999, which is after the implementation of the new system.  (See Table 1.) 
Table 1

Distribution of Medicare End-Stage Renal Disease (ESRD) 

Patient Discharges to Post Hospital Services,

First 5 Months of 1998 and 1999

January to May  January to May 
1998  1999 
Post Hospital  Percent of  Percent of  Difference 
Service  ESRD Discharges  ESRD Discharges  1998-1999 
Home  63.8  60.6  -3.2 ** 
SNF  11.2  11.9  0.7 ** 
Home Health  8.6  9.1  0.5 * 
Intermediate Care  1.7  2.1  0.3 ** 
Other  14.8  16.4  1.7 ** 
Source: Medicare National Claims History File 
Note: Includes End-Stage Renal Disease patients and patients with DRGs 316 or 317. 
Differences may be due to rounding. 
* Statistically significant at the .05 level. 
** Statistically significant at the .01 level. 
The data also show no significant changes in the types of ESRD patients discharged to SNFs. 
2
 The largest difference is among patients with renal failure (DRG 316) and that difference 
reflects an increase in placements to SNFs.  As shown in Table 2, a greater proportion of 
ESRD patients with renal failure went to SNFs in the first 5 months of 1999 compared to the 
same time period in 1998.  Medicare data show small changes in discharges to SNFs for 
ESRD patients with other diagnoses.  None of the estimates are statistically significant, 
however. 
Table 2

Distribution of Medicare ESRD Discharges to Nursing Homes

by Diagnosis Related Groups,

First 5 Months of 1998 and 1999

January to May  January to May  Difference 
DRG  Description  1998  1999  1998-1999 
Percent of  Percent of 
ESRD Discharges  ESRD Discharges 
316  Renal failure  38.7  40.9  2.2 
113  Amputation for circulatory system 
disorders  4.1  3.6  -0.5 
478  Other vascular procedures with 
complication or comorbid condition  3.8  4.1  0.2 
127  Heart failure and shock  3.1  2.9  -0.2 
416  Septicemia  2.9  2.4  -0.5 
144  Other circulatory system diagnoses with 
complication or comorbid condition  2.8  3.4  0.6 
120  Other circulatory system operating room 
procedures  2.4  2.9  0.5 
089  Simple pneumonia and pleurisy  2.1  2.5  0.5 
014  Specific cerebrovascular disorders  1.8  1.5  -0.3 
415  Operating room procedure for infectious 
and parasitic diseases  1.7  1.2  -0.5 
468  Extensive operating room procedure 
unrelated to principal diagnosis  1.3  1.6  0.3 
Note:  Differences may be due to rounding.  Source: Medicare National Claims History File 
Differences were not statistically significant at the .05 level. 
3
 Overall, the average hospital length of stay for ESRD patients discharged to SNFs was 10.2 
days in the first 5 months of 1998 compared to 10.4 days in the same period in 1999.  This 
difference is not statistically significant.  Average length of stay did change for a few DRGs. 
As shown in Table 3, the average length of stay increased in two of the most common DRGs 
and decreased in one of the most common DRGs for the ESRD population. 
Table 3

Average Length of Stay of ESRD Patients Discharged to SNFs

by Diagnosis Related Groups,

First 5 Months of 1998 and 1999

January to May  January to May 
1998  1999 
Average Length of  Average Length of  Difference 
DRG  Description  Stay in Days  Stay in Days  1998-1999 
316  Renal failure  8.9  9.1  0.2 
113  Amputation for circulatory system 
disorders  14.0  13.4  -0.6 
478  Other vascular procedures with 
complication or comorbid condition  8.9  11.4  2.5 * 
127  Heart failure and shock  7.6  6.1  -1.5 
416  Septicemia  10.2  12.5  2.3 
144  Other circulatory system diagnoses with 
complication or comorbid condition  7.0  8.3  1.3 
120  Other circulatory system operating room 
procedures  8.1  11.3  3.2 * 
089  Simple pneumonia and pleurisy  8.7  7.7  -1.0 
014  Specific cerebrovascular disorders  11.3  9.4  -1.9 
415  Operating room procedure for infectious 
and parasitic diseases  21.3  16.4  -4.9 * 
468  Extensive operating room procedure  15.1  20.5  5.4 
unrelated to principal diagnosis 
*Statistically significant at the .05 level. Source:  Medicare National Claims History File 
We hope this information will be helpful to HCFA staff as they continue to monitor the effects 
of the prospective payment system. If you have any questions or comments about this 
memorandum, please call me or have your staff call Stuart Wright at (410) 786-3144. 
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