Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

AUGUST 1999 

OEI-02-99-00400 

Early Effects of the 

Prospective Payment System 

on Access to Skilled Nursing Facilities 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's New York regional office prepared this report under the direction of John I. Molnar, 

Regional Inspector General, and Renee C. Dunn, Deputy Regional Inspector General. Principal 

OEI staff included: 

REGION* HEADQUARTERS 

Jodi Nudelman, Project Leader Jennifer Antico, Program Specialist

Miriam Gareau Barbara Tedesco, Statistician

Judy Lin Scott Horning

Steve Shaw Linda Moscoe

*All staff in the New York Regional Office and some staff in the Chicago Regional Office, led by

Ann Maxwell, participated in the data collection.

To obtain copies of this report, please call the New York Regional Office at (212) 264-2000. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY 

PURPOSE 

To identify any early effects of the nursing home prospective payment system on Medicare 

beneficiaries’ access to skilled nursing facilities. 

BACKGROUND 

The Health Care Financing Administration (HCFA) asked the Office of Inspector General to 

assess whether the new prospective payment system for skilled nursing facilities (SNFs) is causing 

access problems for Medicare beneficiaries. The Balanced Budget Act of 1997 changed SNF 

reimbursement to a prospective payment system. Beginning with their first cost reporting period 

after July 1, 1998, SNFs are paid through “per diem, prospective, case-mix adjusted” payments 

which cover routine, ancillary, and capital-related costs. Concerns have been raised about the 

adequacy of the payments and the effect of the new system on patients and on nursing homes. 

To address these concerns, 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. Our analysis is primarily based on patients who are likely to 

leave the nursing home when their Medicare Part A coverage ends. We also examined Medicare 

data related to SNF discharges and hospital length of stay. 

FINDINGS 

So far, no serious problems in placing Medicare patients in 

nursing homes are apparent. However, nursing homes are 

changing their admissions practices in response to the 

prospective payment system. 

Generally, discharge planners report that they can place Medicare patients. 

Most discharge planners (66 percent) report that it is “not at all difficult” to place patients in 

nursing homes when their stay will be paid under the Medicare prospective payment system. 

Another 32 percent say that it is “somewhat difficult,” while 1 percent report that it is “very 

difficult.” Discharge planners do not indicate that they are unable to place these patients. They 

commonly explain that nursing homes generally want Medicare patients because they are shortEarly Effects of PPS on Access to SNFs 1 OEI-02-99-00400 
term or because nursing homes are reimbursed at a higher rate for these patients than for 

Medicaid patients. At the same time, about a fifth believe that it has become more difficult to 

place Medicare patients in the past year because of the new prospective payment system. Also, 

44 percent of discharge planners report that it has become more difficult to place patients whose 

Medicare Part A coverage will likely end before they are discharged and who will then become 

Medicaid residents. However, discharge planners do not generally attribute this to the 

prospective payment system. 

Medicare data show no changes in nursing home placements. 

Medicare data confirm that Medicare patients are still being placed in nursing homes. Specifically, 

these data do not show any change in where patients are being placed and in the types of 

Medicare patients who are being placed in nursing homes. In addition, Medicare data indicate an 

increase in the total number of Medicare beds, which is a key factor in nursing home access. 

Nursing homes are changing their admissions practices in response to the 

prospective payment system. 

About half of all discharge planners report that nursing homes have changed their admissions 

practices as a result of the new prospective payment system. Discharge planners explain that 

nursing homes request more detailed clinical information about the patient and are more 

consistently coming to the hospital to directly assess the patient before making admissions 

decisions. 

The patients who have become harder to place are those who need extensive 

services. 

When asked which types of patients have become more difficult to place, the majority of 

discharge planners (58 percent) identify patients who require extensive services. They specifically 

mention patients who require intravenous feedings, intravenous medications, tracheostomy care, 

or ventilator/respirator care. Discharge planners report that some types of special care and 

clinically complex patients have also become more difficult to place in the past year. 

On the other hand, the patients who have become easier to place are those who 

need rehabilitation services. 

Most discharge planners (69 percent) report that Medicare patients who need special 

rehabilitation have become easier to place in nursing homes in the past year. They most 

commonly state that orthopedic patients, who have had a hip or knee fracture or joint 

replacement, and stroke patients, who require intensive short-term rehabilitation, have become 

easier to place. It is important to note that special rehabilitation is reimbursed at the highest rate 

under the prospective payment system. 

Early Effects of PPS on Access to SNFs 2 OEI-02-99-00400 
CONCLUSION 

It appears that in an early response to the prospective payment system, some nursing homes have 

modified their admission practices. However, despite this practice change, there is no direct 

evidence that Medicare patients are not receiving the SNF care they require. This is partly due to 

an overall increase in the number of Medicare beds and to the fact that Medicare continues to 

reimburse at a higher rate than Medicaid, which is the primary payer of nursing home care. 

We stress that this is an early assessment of the effects of the prospective payment system on 

access. We believe that the Department must remain vigilant to potential problems for Medicare 

patients and for nursing homes. As part of this effort, we will periodically replicate this study of 

discharge planners and analysis of Medicare data. We will particularly focus on the types of 

patients who were identified as being more difficult to place. Additionally, we suggest that the 

Administration on Aging (AoA) alert long-term care ombudsmen to potential admissions 

problems in their areas. The AoA also needs to monitor related National Ombudsmen Reporting 

System data for patterns of abuse. 

COMMENTS 

We received comments on the draft report from the Health Care Financing Administration. They 

generally agree with our findings and our conclusion and note that our report is consistent with 

the early findings of their ongoing monitoring efforts. A copy of their comments is provided in 

Appendix B. 

Early Effects of PPS on Access to SNFs 3 OEI-02-99-00400 
TABLE OF CONTENTS 

PAGE

EXECUTIVE SUMMARY .................................................... 1

INTRODUCTION .......................................................... 5

FINDINGS

Discharge Planners Can Place Medicare Patients .............................. 8

Data Show No Changes in Placement ....................................... 8

Nursing Homes are Changing Admissions Practices ........................... 12

Extensive Services Patients More Difficult to Place ........................... 13

Rehabilitation Patients Easier to Place ..................................... 14

Mixed Evidence about Patient Hospital Stays ................................ 15

CONCLUSION ........................................................... 17

APPENDIX A ............................................................ 18

APPENDIX B ............................................................ 19

Early Effects of PPS on Access to SNFs 4 OEI-02-99-00400 
INTRODUCTION 

PURPOSE 

To identify any early effects of the nursing home prospective payment system on Medicare 

beneficiaries’ access to skilled nursing facilities. 

BACKGROUND 

The Health Care Financing Administration (HCFA) asked the Office of Inspector General to 

assess whether the new prospective payment system for skilled nursing facilities (SNFs) is causing 

access problems for Medicare beneficiaries. Concerns have been raised about the adequacy of the 

payments and the effect of the new system on patients and on nursing homes. 

Skilled nursing facility care is covered by Medicare Part A under certain conditions. Specifically, 

the patient must have been hospitalized for three or more days within the last 30 days for the 

condition that will be treated in the SNF. The SNF stay must also be certified as medically 

necessary and the patient must require daily skilled nursing or skilled rehabilitation services. The 

number of SNF days provided under Medicare is limited to 100 days per benefit period, with a 

co-payment required for days 21 through 100. 

In 1989, Medicare paid $2.8 billion to nursing homes, or about 4.7 percent of the Medicare 

budget. In 1997, this amount increased to $12.2 billion, which was 5.9 percent of the Medicare 

budget. 

Medicare Payments to Nursing Homes 

Medicare Part A payments for SNF care cover routine costs such as the room, dietary service, 

nursing service, minor medical supplies, and social service. Payments also cover capital costs for 

the building and equipment, and ancillary care for specialized services such as therapy, laboratory 

tests, and transportation. Until recently, SNFs were reimbursed on a retrospective, reasonable 

cost basis. 

The Balanced Budget Act of 1997 changed SNF reimbursement to a prospective payment system 

in order to control Medicare Part A program costs. Beginning with the SNF’s first cost reporting 

period after July 1, 1998, SNFs are paid through “per diem, prospective, case-mix adjusted” 

payments which cover routine, ancillary, and capital-related costs. The per diem payment is based 

on fiscal year 1995 Part A & B costs adjusted using the SNF market basket index (minus 1 

percent), case-mix from resident assessments, and geographical wage variations. The market 

Early Effects of PPS on Access to SNFs 5 OEI-02-99-00400 
basket index represents an inflation factor. The case-mix index recognizes that SNF residents 

require different levels of care and is based on an assessment that assigns each resident to one of 

44 Resource Utilization Groups (RUGS-III). This new payment system is being phased in over a 

three year transition period. 

Discharge Planners 

By definition, all Medicare Part A beneficiaries in SNFs are discharged from hospitals. Hospital 

discharge planners who are responsible for coordinating SNF care are therefore in a unique 

position to assess any early effects of the prospective payment system on access to nursing home 

care. 

Federal regulations require all hospitals to offer discharge planning services. The goal of these 

services is to identify a patient’s post-hospital needs and ensure that he or she is discharged to a 

safe environment with the appropriate level of services. In most hospitals, the social work, case 

management, or utilization review department has primary responsibility for discharge planning. 

They place patients in a variety of settings including SNFs, home health care, hospices, or 

intermediate care. 

Discharge planning staff generally follow a standard process. In a typical scenario, staff screen 

patients’ records within 24 hours of admission. They attempt to identify patients who will require 

discharge planning services, such as those who are 65 years and older and living alone or those 

with possibly life-threatening illnesses. They then conduct a psycho-social assessment and discuss 

the patient’s care plan with his or her nurses and physicians, as well as utilization review staff, and 

other relevant interdisciplinary team members. Discharge planners also solicit the patient’s 

preferences and contact family members or other potential caregivers to get their input and 

cooperation. Based on this information, they attempt to place the patient in the most appropriate 

setting. 

Nursing Home Concerns 

The nursing home industry has raised several concerns about the new reimbursement system. The 

industry believes that the system is causing considerable pressure on SNFs and that it will reduce 

payments to these facilities. In media reports, industry representatives have expressed concern 

that the new system may cause some SNFs to go out of business. 

METHODOLOGY 

We conducted this inspection in two stages. First, we conducted a survey of hospital discharge 

planners. To do this, we randomly selected a total of 200 hospitals in eight States. We contacted 

each hospital and sought to interview the discharge planning supervisor or the staff person who 

Early Effects of PPS on Access to SNFs 6 OEI-02-99-00400 
was most familiar with the study issues. We were able to interview a total of 180 discharge 

planners between June 16, 1999 and June 25, 1999. We specifically asked respondents about 

their ability to place different types of patients in nursing homes and about changes in nursing 

home admissions practices in the past year. In order to isolate the effect of the new payment 

system, our analysis is primarily based on patients who are likely to leave the nursing home when 

their Medicare Part A coverage ends. However, we also asked questions about patients who are 

likely to outstay their Medicare Part A coverage. 

Second, we reviewed Medicare data from two sources. Specifically, we analyzed trends in the 

number of nursing home beds using data from the Provider of Services (POS) File which is based 

on the Online Survey Certification and Reporting System (OSCAR). We also analyzed posthospital services from a one percent sample of Medicare beneficiaries from the Medicare National 

Claims History File. 

Sample Selection 

We selected a two-stage stratified cluster sample for this inspection. The first stage of sampling 

was a stratified sample of eight States: 

the four States with the most SNF beds (CA, NY, IL, TX);

two of the four States currently using a Medicaid prospective payment system (MS, ME); 

two States randomly selected from the remaining 40 contiguous States (VA, CT).

At the second stage, we selected a simple random sample of 25 hospitals within each of these 

States. This State sample is the same as the one used for two related studies being conducted by 

the Office of Inspector General. These forthcoming studies are: Nursing Home Financial 

Screening and Distinct Part Rules, OEI-02-99-00340 and Nursing Home Resident Assessment, 

OEI-02-99-00040. 

Limitations 

The findings in this report are primarily based on self-reported data that were not independently 

verified. Further, this report is limited to identifying only early effects of the new reimbursement 

system. The majority of SNFs started shifting to the prospective payment system as of January 1, 

1999. In addition, the most recent Medicare data that were available for this report include the 

first five months of 1999. Note that time lags may occur and that these data may not be complete. 

This inspection was conducted in accordance with the Quality Standards for Inspections issued 

by the President’s Council on Integrity and Efficiency. 

Early Effects of PPS on Access to SNFs 7 OEI-02-99-00400 
FINDINGS 

So far, no serious problems in placing Medicare patients in 

nursing homes are apparent. However, nursing homes are 

changing their admissions practices in response to the 

prospective payment system. 

The following findings present a more detailed discussion of Medicare beneficiaries’ access to 

nursing home care. They also describe early effects on access due to changes in nursing home 

admissions practices. 

Generally, discharge planners report that they can place Medicare patients. 

Most discharge planners (66 percent) report that it is “not at all difficult” to place patients in 

nursing homes when their stay will be paid under the Medicare prospective payment system. 

Another 32 percent say that it is “somewhat difficult,” while 1 percent report that it is “very 

difficult.” Discharge planners do not indicate that they are unable to place these patients. They 

commonly explain that nursing homes generally want Medicare patients because they are shortterm or because nursing homes are reimbursed at a higher rate for these patients than for 

Medicaid patients. Some discharge planners also note that there is an adequate number of beds 

available in their area and therefore it is not difficult to place these patients. Further, most 

discharge planners (60 percent) report that nursing homes never or rarely refuse Medicare patients 

because they do not have a Medicare certified bed available. 

At the same time, about a fifth of all discharge planners believe that it has become more difficult 

to place Medicare patients in the past year because of the new prospective payment system. Also, 

44 percent of discharge planners report that it has become more difficult to place patients whose 

Medicare Part A coverage will likely end before they are discharged and who will then become 

Medicaid residents. However, discharge planners do not generally attribute this to the 

prospective payment system. 

Medicare data show no changes in nursing home placements. 

Medicare data generally support discharge planners’ views. The data indicate that Medicare 

patients are still being placed in nursing homes. Specifically, the data show no change in where 

Medicare patients are being placed. As shown in Table 1, the proportion of all Medicare hospital 

discharges that went to SNFs does not differ between the first five months in 1998, which is prior 

to the implementation of the prospective payment system and the same five months in 1999, 

which is after the implementation of the new system. 

Early Effects of PPS on Access to SNFs 8 OEI-02-99-00400 
Table 1

Distribution of Medicare Discharges to Post Hospital Services,

First Five Months of 1998 and 1999

January to May January to May 

1998 1999 

Post Hospital Difference 

Service 1998-1999 

Percent of Percent of 

Total Discharges Total Discharges 

Home 58.7 57.2 -1.5 

SNF 15.6 15.4 -0.2 

Home Health 9.8 10.8 1.0 

Intermediate Care 2.5 3.1 0.6 

Other 13.5 13.5 0.0 

Source: Medicare National Claims History File 

The data also do not show any large changes in the types of Medicare patients who are being 

placed in nursing homes. As shown in Table 2, there are no substantial differences in the 

diagnoses of patients who were discharged to SNFs in the first five months of 1998 compared to 

the same time period in 1999. The ten most common diagnoses discharged to SNFs are the same 

in both years. 

There are small differences in the proportion of discharges to SNFs for a few of the individual 

diagnoses. The largest difference is the proportion of discharges to SNFs for stroke patients. 

This proportion decreased by 1.4 percentage points from the first five months of 1998 to the same 

period in 1999. 

Early Effects of PPS on Access to SNFs 9 OEI-02-99-00400 
Table 2

Distribution of Medicare Discharges by Diagnosis Related Groups,

First Five Months of 1998 and 1999

January to May January to May 

1998 1999 

Percent of Percent of Difference 

DRG Description Discharges to Discharges to 1998-1999 

SNFs SNFs 

209 Major joint limb reattachment 7.2 6.6 -0.5 

089 Simple pneumonia and pleurisy 6.9 7.2 0.4 

014 Specific cerebrovascular disorders 6.0 4.5 -1.4** 

127 Heart failure and shock 5.1 5.0 -0.0 

079 Respiratory infections and inflammation 3.7 3.9 0.2 

210 Hip and femur procedures 3.5 4.0 0.5 

416 Septicemia 3.0 3.1 0.1 

296 Nutritional/misc. metabolic disorders 2.9 3.3 0.4 

088 Chronic obstructive pulmonary disease 2.6 2.5 -0.2 

320 Kidney and urinary tract infections 2.5 2.9 0.4 

**Statistically significant at the .01 level. Source: Medicare National Claims History File 

Note: Differences may be due to rounding. 

Further, it is important to note that the most recent available data show that at the time that the 

prospective payment was implemented, the total number of discharges to SNFs was increasing. 

As shown in Table 3, in 1996, there were about 1.7 million discharges to SNFs, which amounted 

to about 13.6 percent of all Medicare hospital discharges. In 1998, the number of discharges to 

SNFs increased to approximately 1.8 million, which was about 15.3 percent of all Medicare 

hospital discharges. (Similar data are not available for 1999.) 

Early Effects of PPS on Access to SNFs 10 OEI-02-99-00400 
Table 3

Distribution of Medicare Discharges to Post Hospital Services,

1996 to 1998

1996 1997 1998 

Post Hospital Difference 

Service 1996-1998 

Percent of Percent of Percent of 

Total Total Total 

Discharges Discharges Discharges 

Home 60.1 59.0 58.9 -1.2 

SNF 13.6 14.5 15.3 1.6 

Home Health 10.8 10.7 9.8 -1.0 

Intermediate 

Care 

2.4 2.4 2.6 0.2 

Other 13.1 13.4 13.4 0.3 

Source: Medicare National Claims History File 

Note: Differences may be due to rounding. 

Two-thirds of discharge planners also report that the total number of Medicare patients they 

discharge to nursing homes has increased over the past two years. Most of these respondents 

suggest that this increase is due to a greater number of patients who are elderly and who need 

skilled care. They also note that patients are staying in the hospital for shorter periods of time and 

that some are leaving sicker and therefore more likely to need skilled care. Few discharge 

planners (7 percent) mention that changes in the number of Medicare patients discharged to 

nursing homes are the result of the new prospective payment system. 

In addition, annual Medicare data show an increase in the total number of Medicare beds, which is 

a key factor in nursing home access. As shown in Table 4, in 1998, there were approximately 

17,300 nursing facilities with about 1.86 million nursing home beds nationwide. About 722,000 

of these beds, or nearly 40 percent, were Medicare certified. Since 1996, the total number of 

Medicare certified beds has increased by 7 percent. Thus, an increase in capacity was occurring 

just as the new perspective payment system was coming on-line. 

Early Effects of PPS on Access to SNFs 11 OEI-02-99-00400 
Table 4

Total Number of Nursing Home Beds, 1996 to 1998

Percent Change 

1996 1998 1996-1998 

Nursing 

Total Beds 1,848,335 1,861,281 0.7% 

Total 

Medicare Beds 672,329 722,278 7.4% 

Source: Provider of Services File 

Discharge planners generally confirm these national trends. The majority (93 percent) state that 

the total number of nursing home beds in their area has remained the same or has increased over 

the past two years. Further, more discharge planners report an increase in the number of 

Medicare certified beds than those who report an increase in all nursing home beds. Less than 10 

percent of discharge planners attribute changes in the supply of nursing home beds in their area to 

the new prospective payment system. 

In addition, about eight percent of discharge planners report that they are aware of a nursing 

home closing in their area in the past year. One percent report that a nursing home has closed as 

the result of the prospective payment system. Others believe that these closures are due to poor 

management or fraud. Note that we did not independently verify these reports. 

Nursing homes are changing their admissions practices in response to the 

prospective payment system. 

About half of all discharge planners report that nursing homes have changed their admissions 

practices as a result of the new prospective payment system. Nearly two-thirds state that the new 

system has had some effect on their ability to place Medicare patients in nursing homes. 

Discharge planners explain that in the past year nursing homes have requested more detailed 

clinical information about patients. They note that nursing homes are increasingly looking at the 

cost of care and of services before making admissions decisions. In some cases, nursing homes 

review the cost of patients’ medications. Discharge planners also observe that nursing home staff 

are more consistently coming to the hospital to directly assess the patient. About 20 percent of all 

discharge planners specifically note that nursing homes are less willing to accept patients 

Early Effects of PPS on Access to SNFs 12 OEI-02-99-00400 
with certain medical conditions because of the prospective payment system. A similar proportion 

also say that nursing homes will only take patients for whom they will be reimbursed at a high 

rate. 

The patients who have become harder to place are those who need extensive 

services. 

When asked which types of Medicare patients have become more difficult to place in nursing 

homes, the majority of discharge planners (58 percent) identify patients who require extensive 

services. (See Table 5.) These types of patients typically require complex direct nursing care and 

expensive medications. They include patients who require intravenous feedings, intravenous 

medications, tracheostomy care, or ventilator/respirator care. 

Discharge planners report that some types of special care and clinically complex patients have also 

become more difficult to place in the past year. Specifically, they mention patients who need 

dialysis and patients who have surgical wounds or open lesions that require substantial direct 

nursing care time and special supplies and medications. 

Additionally, discharge planners comment that in the past year some other types of patients have 

become harder to place. These include patients who require isolation, especially those with 

antibiotic resistant infections, patients who have multiple diagnoses, and patients with behavior 

problems. 

Several discharge planners suggest that some of these patients may be harder to place because the 

cost of their care may be higher than the amount that nursing homes are reimbursed under the 

prospective payment system. A few discharge planners note that nursing homes have told them 

that some of the supplies and equipment required by extensive services patients, such as IV 

medications and ventilators, are too costly for them to provide under the new reimbursement 

system. Several also observe that nursing homes are reluctant to accept patients with high 

transportation costs, especially dialysis patients, because the cost of transporting these patients 

may exceed the amount that nursing homes are reimbursed for these patients under the 

prospective payment system. 

Early Effects of PPS on Access to SNFs 13 OEI-02-99-00400 
Table 5

Clinical Conditions That Have Become Harder to Place in the Past Year

Clinical Condition* Percent of 

Discharge Planners 

Dialysis 33.8 

IV Medications 31.5 

Ventilator/Respirator 28.8 

Surgical Wounds or Open Lesions 17.7 

Isolation/Antibiotic Resistant Infection 15.2 

IV Feedings 15.0 

Multiple Conditions 10.6 

Behavior Problems 10.5 

Alzheimer’s 6.7 

Tracheostomy Care 5.9 

Radiation Treatment 5.6 

Chemotherapy 4.7 

Septemia 4.6 

Dementia 4.0 

Diabetes 3.4 

* Categories are not mutually exclusive Source: OEI Discharge Planning Survey, 

June 1999 

The patients who have become easier to place are those who need rehabilitation 

services. 

Most discharge planners (69 percent) report that Medicare patients who need special 

rehabilitation have become easier to place in nursing homes in the past year. (See Table 6.) They 

most commonly report that orthopedic patients, who have had a hip or knee fracture or joint 

replacement, and stroke patients, who require intensive short-term rehabilitation, have become 

easier to place. At the same time, some discharge planners do not cite specific diagnoses, but 

rather comment that patients who require rehabilitation therapy such as physical, occupational, or 

Early Effects of PPS on Access to SNFs 14 OEI-02-99-00400 
speech therapy have become easier to place. Several discharge planners explain that patients 

needing rehabilitation generally have short stays in nursing homes and become independent in 

activities of daily living quickly. Further, it is important to note that special rehabilitation is 

reimbursed at the highest rate under the prospective payment system. 

Table 6

Clinical Conditions that Have Become Easier to Place in the Past Year

Clinical Condition* Percent of Discharge 

Planners 

Orthopedics 54.7 

Stroke/CVA 34.5 

Physical Therapy 16.2 

Rehabilitation Therapy (general) 13.9 

Occupational Therapy 3.0 

Speech Therapy 2.0 

* Categories are not mutually exclusive Source: OEI Discharge Planning Survey, June 1999 

Evidence that Medicare patients are staying in hospitals longer is mixed. 

About half of discharge planners believe that the number of Medicare patients who have extended 

lengths of stay has increased in the past year. One-third report that this increase is due to the new 

prospective payment system. They explain that nursing homes are focusing on the cost of medical 

supplies and services and that they are being more selective about which types of patients they 

accept. Others attribute the increase in extended stays to fewer beds being available in their area 

or to a general increase in the number of patients who need skilled care. 

Discharge planners explain that patients who are difficult to place generally remain in the hospital 

until they can be placed in a nursing home. Some discharge planners attempt to place these 

patients farther away or in alternate forms of care such as home health. In some cases, patients 

who are the most difficult to place stay in hospitals until they are able to go home. 

Medicare data, however, do not show any substantial increases in the average lengths of stay for 

the ten most common diagnoses discharged to SNFs. As shown in Table 7, the average lengths of 

stay of these diagnoses are similar for the first five months of 1998 and the first five months of 

1999. Note that the average lengths of stay also do not increase for any of the three diagnoses 

that are affected by the transfer policy, which we would expect to increase the average length of 

stay. 

Early Effects of PPS on Access to SNFs 15 OEI-02-99-00400 
Table 7

Average Length of Stay by Diagnosis Related Groups,

First Five Months of 1998 and 1999

January to May January to May 

1998 1999 

Average Length Average Length Difference 

DRG Description of Stay of Stay 1998-1999 

014 Specific cerebrovascular disorders 1 9.6 8.2 -1.4 

079 Respiratory infections and inflammation 9.3 9.1 -0.2 

088 Chronic obstructive pulmonary disease 6.7 6.8 0.1 

089 Simple pneumonia and pleurisy 7.2 7.3 0.1 

127 Heart failure and shock 7.8 7.7 -0.1 

209 Major joint limb reattachment 1 5.4 5.3 -0.1 

210 Hip and femur procedures 1 6.8 6.7 -0.1 

296 Nutritional/misc. metabolic disorders 7.3 7.1 -0.2 

320 Kidney and urinary tract infections 5.9 6.6 0.7 

416 Septicemia 9.8 8.6 -1.2 

1 Included in the transfer policy Source: Medicare National Claims History File 

Differences were not statistically significant at the .05 level 

Early Effects of PPS on Access to SNFs 16 OEI-02-99-00400 
CONCLUSION 

It appears that in an early response to the prospective payment system, some nursing homes have 

modified their admission practices. However, despite this practice change, there is no direct 

evidence that Medicare patients are not receiving the SNF care they require. This is partly due to 

an overall increase in the number of Medicare beds and to the fact that Medicare continues to 

reimburse at a higher rate than Medicaid, which is the primary payer of nursing home care. 

We stress that this is an early assessment of the effects of the prospective payment system on 

access. We believe that the Department must remain vigilant to potential problems for Medicare 

patients and for nursing homes. As part of this effort, we will periodically replicate this study of 

discharge planners and analysis of Medicare data. We will particularly focus on the types of 

patients who were identified as being more difficult to place. Additionally, we suggest that the 

Administration on Aging (AoA) alert long-term care ombudsmen to potential admissions 

problems in their areas. The AoA also needs to monitor related National Ombudsmen Reporting 

System data for patterns of abuse. 

COMMENTS 

We received comments on the draft report from the Health Care Financing Administration. They 

generally agree with our findings and our conclusion and note that our report is consistent with 

the early findings of their ongoing monitoring efforts. A copy of their comments is provided in 

Appendix B. 

Early Effects of PPS on Access to SNFs 17 OEI-02-99-00400 
APPENDIX A 

CONFIDENCE INTERVALS FOR KEY FINDINGS

We calculated confidence intervals for 7 key findings. The point estimate and 95% confidence 

interval are given for each of the following: 

KEY FINDINGS ESTIMATE 

POINT 

INTERVAL 

CONFIDENCE 

It is not difficult to place Medicare patients in nursing 

homes. 

65% 61 - 69% 

It has become more difficult to place Medicare patients 

in the past year because of the new prospective payment 

system. 

19% 6 - 32% 

Nursing homes have changed their admissions practices as 

a result of the new prospective payment system. 

53% 47 - 59% 

The new system has had an effect on discharge planners’ 

ability to place Medicare patients in nursing homes. 

65% 60 - 70% 

Patients requiring extensive services have become more 

difficult to place in nursing homes in the past year. 

58% 54 - 62% 

The number of Medicare patients who have extended 

hospital stays has increased in the past year because of the 

new prospective payment system. 

32% 20 - 44% 

Medicare patients who need special rehabilitation have 

become easier to place in nursing homes in the past year. 

69% 59 - 79% 

Early Effects of PPS on Access to SNFs 18 OEI-02-99-00400 
APPENDIX B 

Comments 

Early Effects of PPS on Access to SNFs 19 OEI-02-99-00400 
Early Effects of PPS on Access to SNFs 20 OEI-02-99-00400 
Early Effects of PPS on Access to SNFs 21 OEI-02-99-00400