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30–439 2006

LONG-TERM ACUTE CARE HOSPITALS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

MARCH 15, 2006 

Serial No. 109–70 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

DEVIN NUNES, California 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

NANCY L. JOHNSON, Connecticut, Chairman 

JIM MCCRERY, Louisiana 

SAM JOHNSON, Texas 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

KENNY C. HULSHOF, Missouri 

FORTNEY PETE STARK, California 

JOHN LEWIS, Georgia 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

iii 

C O N T E N T S 

Page 

Advisory of March 8, 2006, announcing the hearing ............................................ 2 

WITNESSES 

Center for Medicare Management, Centers for Medicare and Medicaid Services, U.S. Department of Health & Human Services, Herb Kuhn, Director ... 6 

Medicare Payment Advisory Commission, Mark E. Miller, Executive Director . 11 

Hospital for Special Care, John Votto .................................................................... 38 

Kindred Healthcare, William M. Altman .............................................................. 26 

MassPRO, Laura N. Moore ..................................................................................... 35 

(1) 

LONG-TERM ACUTE CARE HOSPITALS 

WEDNESDAY, MARCH 15, 2006 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 3:15 p.m., in Room 

1100, Longworth House Office Building, Hon. Nancy L. Johnson 

(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

March 8, 2006 

No. HL–13 

Johnson Announces Hearing on 

Long-Term Acute Care Hospitals 

Congresswoman Nancy L. Johnson (R–CT), Chairman, Subcommittee on Health 

of the Committee on Ways and Means, today announced that the Subcommittee will 

hold a hearing on long-term acute care hospitals (LTCHs). The hearing will take 

place on Wednesday, March 15, 2006, in the main Committee hearing room, 

1100 Longworth House Office Building, beginning at 3:00 p.m. or immediately following the Subcommittee on Human Resources hearing on unemployment, whichever time is later. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

Medicare patients currently account for more than 70 percent of discharges from 

LTCH facilities. Long-term acute care hospitals are required to meet all the conditions of participation for short-term acute care hospitals, and they must have an average length of stay for their patients greater than 25 days. Medicare currently does 

not require LTCHs to use assessment tools or patient criteria to evaluate whether 

beneficiaries being treated in these facilities specifically need the level of care that 

LTCHs provide. 

Spending for LTCH services has increased significantly in recent years. According 

to the Medicare Payment Advisory Commission (MedPAC), between 2001 and 2004 

the number of LTCHs increased by 9 percent per year, while the volume of services 

increased by 12 percent annually. Medicare spending on LTCHs during 2001 to 

2004 increased 25 percent per year during that period, and in 2004 alone Medicare 

spending for services in this setting increased by 38 percent. Long-term acute care 

hospitals, however, do not exist nationwide; patients who reside inareas without 

LTCHs often receive long-term care services in other hospitals or skilled nursing facilities. 

The Centers for Medicare and Medicaid Services (CMS) have proposed a payment 

rule for 2007 that would make several changes to the LTCH payment system. The 

rule would provide a zero update to the LTCH base rate of $38,086 for the 2007 

rate year (for discharges occurring on or after July 1, 2006). The Medicare Payment 

Advisory Commission also recommended a zero update for LTCHs in its March 2006 

payment policy report. 

The CMS also proposes a change in the short-stay outlier payment methodology. 

Currently, LTCHs are paid a reduced short-stay amount for patients whose length 

of stay in the facility is five-sixths or less of the average length of stay for that patient’s long-term care-diagnosis related group (LTC–DRG). The CMS notes that 37 

percent of LTCH cases are short-stays in institutions where the average length of 

stay must be more than 25 days. Under current rules, there is a special adjustment 

for short-stay cases so that payment is the lesser of 120 percent of costs, 120 percent 

of the per diem amount multiplied by the length of stay for that discharge, or the 

full LTC–DRG payment amount. The CMS proposed rule would change the 120 perVerDate Aug 31 2005 05:49 Dec 23, 2006 Jkt 030439 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 E:\HR\OC\30439.XXX 30439
3 

cent of costs to 100 percent of costs. The rule also adds a fourth option of paying 

the short-term acute care payment for that diagnosis related group. 

In announcing the hearing, Chairman Johnson stated, ‘‘This hearing will provide 

Committee Members valuable insight into the changing reimbursement world for 

long-term care hospitals. The Center for Medicare and Medicaid Services has proposed a seismic change in how these facilities are paid, so it is important to understand the current payment environment and the rationale for these reforms.’’ 

FOCUS OF THE HEARING: 

Medicare payment policy as it relates to LTCHs, including the CMS proposed rule 

and MedPAC’s March recommendations. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

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March 29, 2006. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

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225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

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If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

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Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

4 

Chairman JOHNSON. The hearing will come to order. Mr. Stark 

is on his way, and he advises that we should begin, so we will do 

so. 

Welcome, Mr. Kuhn and Mr. Miller. I am pleased to chair this 

hearing on long-term care hospitals in the Medicare Program. 

Medicare patients currently account for more than 70 percent of 

the discharges from long-term acute care hospitals, and Long-Term 

Care Hospitals (LTCH) are required to meet all the conditions of 

participation for short-term acute care hospitals, but also must 

have an average length of stay for their patients of greater than 

25 days. 

Medicare currently does not require LTCHs to use assessment 

tools or patient criteria to evaluate whether beneficiaries being 

treated in these facilities specifically need the level of care that 

LTCHs provide. Furthermore, spending on LTCH services has increased significantly in recent years, although the total payments 

to LTCHs is less than 1 percent of total Medicare spending, and 

these hospitals are, as we know, returning people to life and independence that not very many years ago would have died or been 

permanently disabled. 

Between 2001 and 2004, the number of LTCH facilities increased 

9 percent a year while the volume of services increased 12 percent 

annually. Medicare spending on LTCHs during 2001 to 2004 increased 25 percent per year during that period, and in 2004 alone 

Medicare spending for services in this setting increased by 38 percent. Needless to say, it is clear why this sector has caught our attention. Long-term acute care hospitals, however, do not exist nationwide, and patients who reside in areas without LTCHs often receive long-term care services in Intensive Care Units (ICU), as 

outliers in acute care hospitals, in other rehabilitation type hospitals, or in skilled nursing facilities; or they simply do not receive 

the care they need and die or are permanently disabled. 

The Medicare payment Advisory Commission recommended a 

zero update for LTCHs in its March 2006 payment report. In the 

past, it has proposed and I support establishing criteria for facilities and patients so that both have the comfort to know they are 

providing and receiving appropriate care at the right time and in 

the right place. 

This hearing will provide us with valuable insights into the 

changing reimbursement world for long-term care hospitals. Centers for Medicare and Medicaid Services (CMS) has proposed a significant change in how thee facilities are paid in its 2007 payment 

rule, so it is important to understand the current payment environment and the rationale for these reforms. 

I am pleased to have with us today two distinguished panels of 

witnesses to help us explore the issues facing our long-term care 

hospitals. On our first panel, we will hear Mr. Herb Kuhn, the Director of the Center for Medicare Management at the CMS. Mr. 

Kuhn will describe for us the thinking behind CMS’ proposed payment rule for long-term care hospitals, along with the ongoing work 

the agency is doing on developing patient criteria for LTCHs. 

We will also hear from Dr. Mark Miller, Executive Director of the 

Medicare Payment Advisory Commission. Dr. Miller will discuss 

the work of MedPAC done recently in evaluating the growth of 

5 

long-term care hospitals in Medicare and their recommendations 

for the use of patient and facility criteria to ensure that beneficiaries are being admitted to these facilities appropriately. 

On our second panel, we will hear from William Altman, Senior 

Vice President of Kindred Healthcare, a nationwide provider of 

long-term care services. Mr. Altman will provide us with an industry response to the proposed CMS rule from the perspective of a 

diversified, for-profit provider of post-acute services ranging from 

skilled nursing facilities to LTCHs in 40 States. 

We will then hear from Laura Moore, Vice President of Strategy 

and Operations at MassPRO, the QIO for the State of Massachusetts. MedPAC has recommended that Quality Improvement Organizations (QIO) be more involved in evaluating LTCH admissions 

for medical necessity, and Ms. Moore will discuss with us the process MassPRO uses for evaluating LTCH admissions. 

Finally, I am pleased to welcome to our second panel Dr. John 

Votto, President and Chief Executive Officer of the Hospital for 

Special Care, which is in my hometown of New Britain. Dr. Votto 

will provide us with an industry reaction to the CMS proposed rule 

from the perspective of a localized nonprofit long-term care facility, 

and also will comment on the issue of criteria-based admissions, an 

issue he has worked hard on as the chairman of a Committee of 

physician and other specialists from across the country looking at 

this issue. 

Long-term care hospitals provide critical services to medically 

complex patients, and it is essential that we preserve beneficiary 

access to these services while also protecting the interests of taxpayers and of the Medicare Program as a whole. 

I look forward to hearing from all of our witnesses on this issue, 

and Mr. Stark will submit his comments for the record and will be 

along shortly. Mr. Kuhn? 

[The prepared statement of Mr. Stark follows:] 

Opening Statement of The Honorable Pete Stark, a Representative in 

Congress from the State of California 

Madam Chair, the topic of today’s hearing is one of those that can rightfully be 

described as being in the underbelly of Medicare payment policy. We’ve seen tremendous growth in long-term care hospitals and associated spending, and it’s an 

area that deserves attention. Indeed, while I have generally supported past CMS efforts to reign in this burgeoning industry, I do think that the proposed rule needs 

to be revisited, and I look forward to today’s testimony and discussion. 

However, I can’t help but note, again, that we are fiddling while Rome burns. We 

have been asking for hearings, in writing, in private, and on the dais, on Part D 

for well over a year, yet the Committee on Ways and Means refuses to move forward. Every other authorizing committee and a few others have held hearings. Not 

us. We are apparently too busy. 

Let’s put this in perspective. In 2004, Medicare paid for about 122,000 cases in 

long-term care hospitals out of a Medicare population of almost 42 million Medicare 

beneficiaries. Iif every case were unique, which it might be for LTCHs, that would 

be less than 3/10ths of a percent. This rule was proposed January 27. My staff was 

first lobbied on this a week or two ago. The comment period closes at the end of 

this month. And here we are in a hearing on this very narrow issue. 

In contrast, the MMA was enacted in December, 2003. Medicare spending for the 

new private prescription drug program is projected to run between $23–37 billion 

this year (CBO versus Actuaries), and the program may affect up to 37 million beneficiaries. Regardless of the precise number, it’s a lot of money and a lot of people. 

And no matter how optimistic Wall Street is about the potential for profit in the 

long-term care hospital industry, this sector is a long way from competing with Part 

D. 

6 

I speak from experience when I say that it can be uncomfortable to review your 

own party’s—much less your own—activities. But we are abrogating our Congressional and Constitutional responsibilities when we fail to do so. That said, I look 

forward to today’s discussion, and hope we can get closer to a sensible approach that 

ensures appropriate access to care while minimizing the conditions that are clearly 

driving industry growth. 

f 

STATEMENT OF HERB B. KUHN, DIRECTOR, CENTER FOR 

MEDICARE MANAGEMENT, CENTERS FOR MEDICARE AND 

MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Mr. KUHN. Thank you, Madam Chairman Johnson, Congressman McCrery. I appreciate the time you have taken to invite me 

to testify about long-term care hospitals. Long-term care hospitals, 

also known as LTCHs, typically provide post-acute medical and rehabilitative care for clinically complex patients including comprehensive rehabilitation and respiratory services. To be classified 

as an LTCH, a hospital must have an average Medicare inpatient 

length of stay of greater than 25 days. Despite the fact that their 

availability varies widely across the Nation, the number of LTCHs 

has increased exponentially over the last 10 years. In addition, 

LTCHs are the highest paid hospitals in the Medicare Program, 

with average Medicare margins of nearly 12 percent. 

CMS published the long-term care hospital prospective payment 

system proposed rule on January 27, 2006. The rule is intended to 

assure appropriate payment for services to severely ill or medically 

complex patients, while providing incentives for more efficient care 

of Medicare beneficiaries. 

The proposed rule provides for no increase in Medicare payment 

for LTCHs in 2007. MedPAC similarly, as you suggested in your 

opening statement, made this recommendation in their March 2006 

report to Congress that Medicare payments to LTCHs are more 

than adequate, recommending a zero update for 2007. Again, their 

recommendation focused on efficiency without affecting the ability 

to furnish high-quality care to Medicare beneficiaries. 

The proposed rule also would revise the payment adjustment formula for short-stay outlier cases. Short-stay outliers are cases 

where the patient may be discharged early, and often the hospital’s 

costs are significantly below average. The most recent available 

data show that short-stay outlier cases comprise approximately 37 

percent of LTCH discharges, and CMS believes that is an inappropriately high number of patients treated in LTCHs. Existing payment policy may unintentionally provide a financial incentive for 

LTCHs to admit a large number of short-stay cases, including premature and even inappropriate patient shifting from the referring 

acute care hospitals. The proposed rule would ensure that payments for short-stay outliers do not exceed costs. It would also add 

a fourth component to the current formula that would allow payment based on an amount comparable to what would be paid under 

the inpatient prospective payment system. We estimate that these 

revisions would result in approximately $440 million in savings to 

the Medicare Program. 

7 

CMS also discusses in the proposed regulation additional considerations of the hospital within a hospital criteria. As of October 

2005, there were 376 LTCHs in the CMS database, of which 176 

were hospitals within hospitals, and these facilities have been 

growing at a rate of 35 percent per year from 1993 to 2003. CMS 

recognizes that collocation of an acute care hospital and LTCH 

services may be an efficient way to deliver care and may be less 

disruptive for patients at the same time. However, collocation also 

leads to patient shifting from one part of a hospital to another, resulting in two Medicare payments for what is essentially one episode of patient care. 

To ensure that Medicare avoids making two payments, CMS implemented a payment adjustment for fiscal year 2004 relating to 

the percentage of patients discharged from a hospital within a hospital or satellite that were admitted from its collocated host hospital before receiving a full episode of treatment at the host hospital. This payment adjustment is commonly called the 25-percent 

payment threshold policy. It is CMS’ obligation to ensure that 

beneficiaries receive the right care in the appropriate setting at the 

appropriate payment for the services. Thus, CMS will continue to 

monitor the admission patterns of LTCHs to determine if further 

rulemaking is warranted. 

Finally, CMS wants to ensure that the criteria used to determine 

placement in an LTCH are appropriate. In June 2004, MedPAC did 

release a report providing recommendations that urged us to establish facility and patient criteria for LTCHs and provide an expanded role for quality improvement organizations (QIO) in monitoring compliance with the newly established criteria. Currently, 

CMS is pursuing MedPAC’s recommendations. We have awarded a 

contract with Research International, Inc. (RTI) in 2004 for this 

purpose, and a final report is expected this spring. 

Since parts of the country lack LTCHs, LTCH-type patients may 

receive hospital-level treatment at acute care hospitals as outlier 

patients, or, for example, at an inpatient facility with significantly 

lower payments per beneficiary discharge than at LTCHs. RTI’s research attempts to determine whether patient outcomes are equivalent across these sites. One specific area of evaluation will be 

whether there is a correlation between the higher payments of 

LTCHs and improved patient outcomes for the same types of patients in different treatment settings. 

The goal of the Medicare Program is to assure cost-effective delivery of the highest quality of medical services to beneficiaries. 

CMS looks forward to receiving comments on the proposed rule— 

the comment period closes next Monday, March 20—in order for us 

to be able to develop the final policy and guide the future of LTCHs 

appropriately. I look forward to your questions. 

Thank you. 

[The prepared statement of Mr. Kuhn follows:] 

Statement of Herb B. Kuhn, Director, Center for Medicare Management, 

Centers for Medicare and Medicaid Services, U.S. Department of Health 

& Human Services 

Madam Chairman Johnson, Congressman Stark, distinguished Subcommittee 

members, thank you for inviting me to testify about long-term care hospitals 

(LTCHs). Long term care hospitals (LTCHs) typically provide post-acute medical 

8 

and rehabilitative care for clinically complex patients including comprehensive rehabilitation, respiratory therapy, head trauma treatment and pain management. Despite the fact that their availability varies widely across the nation, the number of 

LTCHs has increased exponentially over the last 10 years. The number of LTCHs 

more than tripled between 1993 and March 2005. Although the two States with the 

largest number of LTCHs are Texas and Louisiana, substantial growth is also occurring in States with large numbers of elderly populations including Pennsylvania, 

Ohio, Michigan, Georgia, Indiana, and Oklahoma. LTCHs are the highest paid hospitals in the Medicare program; preliminary cost report data for FY 2004 indicate 

average Medicare margins of almost 12 percent. 

CMS published the long-term care hospital prospective payment system (LTCH 

PPS) proposed rule on January 27, 2006. The rule is intended to assure appropriate 

payment for services to severely ill or medically complex patients, while providing 

incentives to LTCHs for more efficient care of Medicare beneficiaries. CMS believes 

the proposed rule promotes appropriate payment, efficient care, and the Agency is 

looking forward to receiving your feedback as well as comments from the public. I 

do want to note that the FY 2007 President’s Budget proposal assumes a zero percent update for Rate Year (RY) 2007 and a modified LTCH PPS short stay outlier 

policy. 

Background 

Most patients in LTCHs are clinically complex and have multiple co-morbidities— 

that is, they have secondary health conditions that can interact with and lead to 

an intensification of the primary diagnosis requiring hospital-level medical treatment. Medicare beneficiaries comprise, on average,83 percent of LTCH patients and 

the distributions vary from 68 percent to 90 percent at the 25th and 75th percentiles. LTCHs also provide care to a disproportionately large number of beneficiaries 

who are Medicare eligible because of disability. To be classified as an LTCH, a hospital must have an average Medicare inpatient length of stay that is greater than 

25 days. CMS is considering payment adjustments for LTCHs that are tied to specific patient classification criteria based recommendations from the Medicare Payment Advisory Commission (MedPAC) and the results from the research currently 

underway by RTI International (RTI). 

The LTCH PPS was implemented October 1, 2002 to assure appropriate payment 

for services to the medically complex patients treated in LTCHs. The LTCH PPS 

currently sets payments for approximately 376 LTCHs, and payments under the 

LTCH PPS are updated annually. 

CMS issued the LTCH Proposed Rule for Rate Year 2007 

Public comments on the LTCH PPS Proposed Rule for Rate Year (RY) 2007 will 

be accepted until March 20, 2006. The proposed rule provides for no increase in 

Medicare payment rates to LTCHs for RY 2007, which means the LTCH PPS standard Federal rate would remain at $38,086.04. The standard Federal rate for RY 

2007 would apply to LTCH patient discharges taking place on or after July 1, 2006, 

through June 30, 2007. Similarly, MedPAC stated in its March 2006 Report to Congress that Medicare payments to LTCHs are more than adequate, recommending a 

zero update for LTCHs in 2007. MedPAC determined that keeping payments at the 

same level as 2006 would increase program efficiency without affecting the ability 

of LTCHs to furnish high quality care to Medicare beneficiaries. 

The CMS update proposal is based on analysis of the LTCH case-mix index before 

and after implementation of the LTCH PPS, analysis of LTCH margins based on 

the latest available cost report data, and recent update recommendations for the 

LTCH PPS from MedPAC in the Commission’s March 2006 Report to the Congress. 

In analyzing LTCH data, CMS found that the case-mix index increased by 6.75 percent between fiscal years (FYs) 2003 and 2004, which is believed to be due in large 

part to changes in coding practices and documentation rather than the treatment 

of more resource intensive patients. This belief is based on an analysis of LTCH cost 

report data that shows LTCH payments are increasing without a commensurate increase in average case costs. The LTCH PPS Federal rate for RY 2007, which would 

be the same as the Federal rate for RY 2006, would reflect an adjustment to the 

market basket update to account for the increase in case mix due to changes in coding practices. In addition, cost report data show increasing Medicare margins among 

LTCHs since the implementation of the LTCH PPS. Specifically, in an analysis of 

LTCH cost report data, CMS found that LTCH Medicare payments for FY 2003 (the 

first year of the LTCH PPS) were 8.8 percent higher than LTCHs’ Medicare costs. 

Preliminary cost report data for FY 2004 data reveal an even higher Medicare margin of 11.7 percent. 

9 

Currently CMS uses the excluded hospital with capital market basket as the 

measure of inflation for calculating the annual update to the LTCH PPS Federal 

rate. CMS is proposing to adopt the Rehabilitation, Psychiatric and Long-Term Care 

(RPL) market basket to calculate the annual update to the LTCH PPS Federal Rate. 

The RPL market basket is based on the operating and capital costs of Inpatient Rehabilitation Facilities (IRFs), Inpatient Psychiatric Facilities (IPFs), and LTCHs. 

CMS would also revise the labor-related share of the Federal rate based on the RPL 

market basket. The revised labor-related share would increase from 72.855 percent 

(based on the excluded hospital with capital market basket) to 75.923 percent. Increasing the labor share will have a positive impact on payments to LTCHs in areas 

with a wage index of greater than 1.0. 

The proposed rule also presents for comment a preliminary model of an update 

framework for possible future use under the LTCH PPS. The framework would account for other appropriate factors affecting the efficient delivery of services and 

care provided in LTCHs when determining future Federal rate update proposals. 

CMS intends to consider comments in refining the framework and would propose 

a refined framework in a future regulation before using it to determine an update 

proposal. 

CMS’s Proposed Ruke Would Revise the Payment Adjustment Formula for 

Short-Stay Outlier Cases 

The proposed rule would revise the payment adjustment formula for short-stay 

outlier (SSO) cases (i.e., cases with a length of stay less than or equal to 5/6 of the 

average length of stay of the LTC–DRG). SSOs are cases where the patient is discharged early and often the hospital’s costs are significantly below average. Currently, under the LTCH PPS, SSO cases are paid the lesser of 120 percent of the 

estimated cost of the case; 120 percent of the LTC–DRG per diem amount; or the 

full LTC–DRG payment. Since the implementation of the LTCH PPS in FY 2003, 

CMS has continued to monitor the SSO policy. The most recent available LTCH 

data reveal that SSO cases comprise approximately 37 percent of LTCH PPS discharges (as compared to 48.4 percent based on the LTCH data used to develop the 

LTCH PPS prior to its implementation in FY 2003). 

CMS believes that 37 percent of LTCH discharges that are SSO cases is an inappropriate number of patients being treated in LTCHs. The Agency is concerned that 

these patients may be more appropriately served in acute care hospitals and that 

the existing SSO payment policy may unintentionally provide a financial incentive 

for LTCHs to admit a large number of short stay cases. 

The proposed rule would reduce the part of the current payment formula that is 

based on costs to ensure that payments for SSOs do not exceed costs. It would also 

add a fourth component to the current formula that would allow payment based on 

an amount comparable to what would be paid under the inpatient prospective payment system (IPPS) for acute care hospitals for patients that group to that DRG. 

CMS proposes that payments for SSO cases would be the lesser of 100 percent of 

the estimated cost of the case, 120 percent of the LTC–DRG per diem amount, the 

full LTC–DRG payment, or an amount comparable to what would be paid under the 

IPPS. CMS estimates that revising the current SSO policy by reducing the percentage of costs in the formula and including a fourth part of the formula would result 

in approximately $440 million in savings to the Medicare program in RY 2007. 

Under this proposed payment alternative, LTCHs, which are certified as acute care 

hospitals, would be paid by Medicare under the LTCH PPS at a rate that is more 

consistent with the rate paid to acute care hospitals when they treat shorter stay 

patients. Additionally, the proposed reduction in the percentage of costs to 100 percent would reduce what CMS perceives to be a financial incentive under the current 

policy for LTCHs to treat short stay cases. 

Adding an amount comparable to what would be paid under the IPPS to the SSO 

payment formula is appropriate since the vast majority of LTCH patients are admitted directly from acute care hospitals. Thus, CMS believes that short stay patients 

at LTCHs may indicate premature and even inappropriate patient shifting from the 

referring acute care hospitals. CMS perceives that LTCHs are acting more like 

short-term acute care hospitals by admitting such a large percentage of short-stay 

patients. Therefore, CMS believes that a patient admitted to an acute care hospital 

for a short stay and a patient admitted to a LTCH (which is certified as an acute 

care hospital) for the same number of days, should be paid a comparable amount. 

CMS Proposes Increasing the Outlier-Fixed Amount 

Medicare will pay a hospital an amount in addition to the Federal rate payment 

under the LTCH PPS for the LTC–DRG for unusually costly cases. To be eligible 

for this additional high cost outlier payment, the hospital’s estimated costs in treatVerDate Aug 31 2005 05:49 Dec 23, 2006 Jkt 030439 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 E:\HR\OC\30439.XXX 30439
10 

ing the case must exceed the LTC–DRG payment by an outlier fixed-loss amount. 

Aggregate estimated outlier case payments are limited to 8 percent of total estimated LTCH payments. For RY 2006, the outlier fixed-loss amount is $10,501. The 

proposed rule would increase the outlier fixed-loss amount for RY 2007 to $18,489. 

Since the proposed changes to the short stay outlier policy would result in reduced 

total LTCH payments, it is necessary to increase the outlier fixed loss amount in 

order to maintain the 8 percent limit on total LTCH outlier payments. CMS established the outlier target at 8 percent of estimated total LTCH PPS payments when 

the Agency implemented the LTCH PPS to allow CMS to achieve a balance between 

the conflicting considerations of the need to protect hospitals with costly cases, while 

maintaining incentives to improve overall efficiency. 

CMS Notes Continuing Issue of Hospital within Hospitals 

The IPPS for acute care hospitals was designed to provide one appropriate payment for hospitalized patients. The Standard Federal payment rate under the IPPS 

for FY 2005 is $4,555 whereas the Standard Federal payment rate under the LTCH 

PPS for RY 2005 was $38,086. Since LTCHs are certified by Medicare as acute care 

hospitals and in many parts of the country patients who could otherwise fit the typical profile of LTCH patients are treated in acute care hospitals as high cost 

outliers, CMS wants to ensure that the significantly higher Medicare payments 

made to LTCH facilities reflect treatment for patients who most need and can benefit from the specialized care they offer. 

As of October 2005, there were 376 LTCHs in the CMS database, of which 176 

were hospitals within hospitals (HwHs). In recent years, MedPAC as well as CMS, 

has been conducting a careful study of the rapid growth in LTCHs, particularly 

LTCH HwHs (which have been growing at a rate of 35 percent per year from 1993 

to 2003—three times the overall rate of LTCH growth. Medicare regulations specify 

that an LTCH is an HwH when it is co-located with another Medicare hospital-level 

provider, its ‘‘host’’, generally an acute care hospital. Under present regulations, for 

an LTCH that occupies space in a building also used by another hospital, or in one 

or more separate buildings located on the same campus as buildings used by another hospital, to be considered a HwH, the entity must meet separateness and control criteria that demonstrate organizational and functional separateness from its 

host hospital. An LTCH may establish a satellite facility in another hospital, which 

must also demonstrate compliance with similar separateness and control criteria regarding its relationship to its host hospital. 

These requirements are in place to ensure that host hospitals and HwHs or satellites are separate in medical and administrative governance and that a given 

LTCH HwH or satellite is not merely serving as a ‘‘step-down’’ unit of the acute care 

hospital. In such a case, Medicare would be paying under two payment systems, the 

IPPS and the LTCH PPS for what is essentially one episode of care. CMS recognizes 

that co-location of an acute care hospital and LTCH services may be an efficient way 

to deliver care and may be less disruptive for patients at the same time; however, 

co-location also leads to patient shifting from one part of a hospital to another, resulting in two Medicare payments for what is essentially one episode of patient care. 

Therefore, CMS believes that co-location creates incentives that can lead to patient 

admission, treatment, and discharge decisions that reflect maximization of Medicare 

payments, rather than provision of the most effective and efficient care based on patient need. 

In order to ensure that Medicare avoids making two payments (one to the acute 

care and one to the onsite LTCH HwH or LTCH satellite) for a single episode of 

care, in addition to the ‘‘separateness and control’’ requirements, CMS implemented 

a payment adjustment for FY 2004 relating to the percentage of patients discharged 

from an HwH or satellite that were admitted from its co-located host hospital prior 

to receiving a full episode of treatment at the host hospital. This payment adjustment is commonly called the 25 percent payment threshold policy. Presently, CMS 

is monitoring and evaluating several identified behaviors that may be attempts to 

circumvent specifics of the implementation of this 25 percent threshold payment adjustment such as ‘‘patient-swapping,’’ (that is hosts cross-discharging to one another’s HwH or satellite). 

CMS is aware that, following the implementation of the 25 percent threshold payment adjustment for co-located LTCHs, the significant growth in the LTCH industry 

has been in the development of free-standing LTCHs. CMS data indicate that many 

free-standing LTCHs are receiving high percentages of their patients from specific 

acute care hospitals (often a sole acute care hospital) and therefore are, in effect, 

acting as units of the acute care hospital, thereby replicating the concerns CMS has 

with LTCH HwHs or LTCH satellites. 

11 

As stewards of the Medicare trust fund, it is CMS’ obligation to ensure that beneficiaries receive the right care, in the appropriate setting, at the appropriate payment for the services. Thus, CMS is concerned about the developments in LTCH 

HwHs and satellites and will continue to monitor the admission patterns of LTCHs 

to determine if further rulemaking is warranted. 

CMS is Evaluating the Criteria Used to Define LTCHs 

Since 1994, CMS has been studying the relationships between treatment at acute 

care hospitals and LTCHs, as well as the linkage between payment policies and substitution of services, especially among acute care hospitals, LTCHs, IRFs, and some 

skilled nursing facilities (SNFs). Many similar services are provided in an LTCH as 

are provided in an acute care hospital. In both cases, patients need a high level of 

care from nurses, technicians, and other health professionals. There are many existing acute care hospitals that treat as patients with the same profile as those typical 

of LTCHs. These acute care hospitals, paid under the IPPS, treat many, if not more, 

outlier (i.e., long length of stay) cases than do most LTCH HwHs. Furthermore, 

given that many acute care hospitals, IRFs, IPFs, and SNFs may serve as settings 

for potential LTCH patients, CMS wants to ensure that the criteria used to determine placement in an LTCH are appropriate. For example, CMS data reveal that 

one of the most frequent LTC–DRGs found in LTCHs is 462—Rehabilitation, a diagnosis that could receive appropriate treatment at IRFs. Another of the most common 

LTC–DRGs is 430, Psychoses, a diagnosis which could also be treated at IRFs. Many 

SNFs also offer a high-level of post-acute care including access to rehabilitation 

services and therapies. 

In June of 2004, MedPAC released a report providing recommendations urging 

CMS to establish facility and patient criteria for LTCHs and provide an expanded 

role for Quality Improvement Organizations (QIOs) in monitoring compliance with 

the newly-established criteria. Currently, CMS is pursuing MedPAC’s recommendations to develop patient and facility-level criteria and to determine the feasibility of 

developing a more clinically sophisticated admissions policy in order to distinguish 

Medicare patients who could most benefit from LTCH treatment. CMS awarded a 

contract to Research Triangle Institute, International (RTI) in 2004 for this purpose 

and a final report is expected in late Spring. 

Since in parts of the country that lack LTCHs, LTCH-type patients may receive 

hospital-level treatment at acute hospitals as outlier patients, at IRFs, or in some 

cases, IPFs with significantly lower payments per beneficiary discharge than at 

LTCHs. RTI’s research attempts to determine whether patient outcomes are equivalent across these sites. One specific area of evaluation will be whether there is a 

correlation between the higher payments at LTCHs and improved patient outcomes 

for the same types of patients in different treatment settings. Since there is wide 

variation in the range of post-acute care facilities available throughout the country, 

if payments are equivalent per case and patient outcomes are generally equal in different areas of the country, the variations may be explained as a reflection of variations in regional practices. However, if outcomes differ substantially for certain 

types of patients, indicating that LTCH patients have better outcomes, the recent 

growth of the LTCH industry could result in the availability of a better level of care 

for Medicare beneficiaries nationwide. Alternatively, if payments differ among provider types but patient outcomes are equivalent, one could question whether higher 

cost LTCH services are needed for all types of cases currently treated, or more specifically, which types of patients benefit from the higher cost LTCH services. 

Conclusion 

Madam Chairman Johnson, Congressman Stark, distinguished Subcommittee 

members, thank you for inviting me to testify about long-term care hospitals today. 

The goal of the Medicare program is to ensure the cost-effective delivery of the highest quality of medical services to beneficiaries. CMS looks forward to receiving comments on the proposed rule in order to develop final policy and guide the future of 

LTCHs appropriately. I will be happy to answer your questions. 

f 

Chairman JOHNSON. Thank you, Mr. Kuhn. Mr. Miller? 

STATEMENT OF MARK E. MILLER, PH.D., EXECUTIVE 

DIRECTOR, MEDICARE PAYMENT ADVISORY COMMISSION 

Mr. MILLER. Chairman Johnson, Congressman McCrery, I am 

Mark Miller, Executive Director of the Medicare Payment Advisory 

12 

Commission. The facts that Chairman Johnson went through are 

the same facts that got the attention of the Commission and drove 

us to look more intensively at long-term care hospitals. As you 

noted, these are very rapidly growing facilities, 9 percent per year, 

expenditures in the 25 and 35 percent growth rate. A decade ago, 

we spent about $400 million on long-term care hospitals, and in 

2007 we are expected to spend about $5 billion on long-term care 

hospitals. 

The other points that you made which also drew our attention 

is that they are not uniformly distributed across the country, and 

so Medicare beneficiaries receive post-acute care services in certain 

communities without using long-term care hospitals. All of these 

facts at least raise questions in the mind of the Commission. 

Before I talk about the studies, you both know that there is a 

prospective payment system that started in 2003. The payment 

rates for long-term care hospitals are very high relative to inpatient hospitals and relative to skilled nursing facilities, and I will 

make a point about that in just a second. Under Prospective Payment System (PPS), both the payments and the costs of care have 

been increasing rapidly since the implementation. However, payments have grown faster than costs; hence, long-term care hospitals are a profitable Medicare service, and we are estimating 

margins in 2006 of about 8 percent for this industry. 

As I mentioned, about a year and a half ago, we did intensive 

analysis of long-term care hospitals. We did our usual very intensive analysis of data—claims, costs, that type of thing. We did 

structured interviews of providers in communities to see what role 

long-term care hospitals played. We also made site visits to the 

long-term care hospitals and met with the medical staffs of the 

long-term care hospitals. We took our own physicians along for 

these discussions so we could have clinically meaningful conversation. 

There are a couple of things from that study that I want you 

both to understand. The first is that in markets where long-term 

care hospitals are present, you have a shorter hospital length of 

stay and less use of skilled nursing facilities. Long-term care hospitals substitute for part of the hospital stay and for skilled nursing facility services. 

The second thing I want you to get is that if you look at the episode of care, the acute care hospital stay and the post-acute care 

associated with that for the beneficiary. Just look at expenditures 

for the Medicare Program, you find that when long-term care hospitals are present, it costs the Medicare Program more. This is an 

important caveat; if you instead focus on the patients who are most 

likely to need those services, select a diagnosis and the most severe 

patients in that diagnosis, you find that long-term care hospitals 

for that episode of care, when you include long-term care hospitals, 

it is not significantly different than alternative settings of care. 

That fact, coupled with some of the things that we learned in the 

site visits, the long-term care hospitals told us how they conducted 

their business, how they conducted the care of the patient. They 

said things like they have more intensive nursing services, higher 

presence of physicians on the floor, multidisciplinary teams, things 

like that. With that information, coupled with what we felt was the 

13 

need to target the services to the patients who most need that level 

of care—we made the recommendations that you are referring, the 

patient-level characteristics and the facility-level characteristics. 

The objective is to define the patients who most need this care and 

to improve the value of the long-term care hospital services to the 

Medicare Program. 

I am not going to go through those criteria in detail, but I am 

willing to do it in questions if you are interested. 

In closing, I just want to say a couple of things. One is that you 

should not take these recommendations as a blanket endorsement 

of long-term care hospitals. We see rapid growth in a setting where 

there are high payments and poorly defined criteria, and any policy 

analyst is going to look at that and it is going to raise questions 

in their mind. 

The Commission is concerned that the long-term care hospitals 

not be used solely to reduce the inpatient length of stay, and then, 

as I have tried to stress throughout all my comments, with these 

payment rates, to assure that the patient who arrives there truly 

needs that level of care, and that is the objective of the criteria. 

I look forward to your questions. 

[The prepared statement of Mr. Miller follows:] 

Statement of Mark E. Miller, Ph.D., Executive Director, Medicare Payment 

Advisory Commission 

Chairman Johnson, Ranking Member Stark, distinguished Subcommittee members. I am Mark Miller, executive director of the Medicare Payment Advisory Commission (MedPAC). I appreciate the opportunity to be here with you this afternoon 

to discuss Medicare payment policy for long-term care hospitals. 

Medicare beneficiaries can seek care after a hospitalization in four different postacute settings: skilled nursing facilities (SNFs), home health agencies (HHAs), longterm care hospitals (LTCHs), and inpatient rehabilitation facilities (IRFs). In addition, in three of these settings patients can be referred directly from the community. 

Use and spending for these services have grown rapidly since the introduction of 

new prospective payment systems for them. About 3.7 million beneficiaries used 

post acute care in 2002. In 2004 Medicare spending for these settings was about $36 

billion, accounting for more than 12 percent of total Medicare spending. 

The overarching issue in Medicare post-acute care (PAC) is that there are no clear 

and comprehensive criteria for which of these settings are best for patients with 

particular characteristics or needs. The recuperation and rehabilitation services provided are important for Medicare beneficiaries. Yet, these settings and their payment systems have developed separately over the years, and it is not clear that together they form an integrated whole that provides the highest quality, most appropriate care for beneficiaries or the best value for the Medicare program and the taxpayers who support it. There is a need for comprehensive payment system reform 

across all PAC settings. Aligning Medicare payment systems with the patient’s 

needs and characteristics and the quality of the care provided, rather than by type 

of facility, remains a challenge that will have to be met to get the best value for 

the Medicare program. 

The Commission maintains that in the post-acute care sector, just as for the other 

sectors of Medicare, the services provided should meet the needs of the beneficiaries, 

Medicare payments should cover the costs of an efficient provider of those services, 

and higher quality services should be rewarded. Currently in post-acute care, none 

of these conditions is fully satisfied. 

Long-term care hospitals, the subject of this hearing, illustrate the larger problem 

in the Medicare post acute care payment systems. Medicare payments to LTCHs 

have increased rapidly—from $398 million in 1993 to about $3.3 billion in 2004— 

and continue to rise. CMS estimates LTCH payments will be $5.2 billion in 2007. 

As shown in Table 1, along with the increase in Medicare spending there has been 

an increase in the number of LTCHs, the number of cases, and the payment per 

case. The average length of stay has fallen. Growth has been particularly rapid 

since the start of the new LTCH prospective payment system (PPS) in 2003. From 

2002 to 2004, 71 new facilities entered the program and Medicare payments inVerDate Aug 31 2005 05:49 Dec 23, 2006 Jkt 030439 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 E:\HR\OC\30439.XXX 30439
14 

creased 38 percent in 2004 alone. Medicare is very important to these hospitals, accounting for 73 percent of discharges, on average, in 2004. 

What are long-term care hospitals? 

The characteristics of long-term care hospitals vary. Some are converted from 

former public health hospitals; these tend to be the largest and are concentrated in 

New England. Others are freestanding but have entered the program more recently. 

The newest entrants, called ‘‘hospitals within hospitals,’’ are collocated with an 

acute care hospital but have separate ownership and financial arrangements. Hospitals within hospitals (HWHs) are smaller than the older LTCHs. The numbers of 

HWHs and freestanding LTCHs both increased following implementation of the 

LTCH PPS in 2003, but the rate of growth in HWHs was more than twice the rate 

for freestanding LTCHs. Both nonprofit and for-profit long-term care hospitals increased from 2001 to 2004, but nonprofits grew more slowly than for profits. Almost 

60 percent of LTCHs are for profit, two-thirds of which are owned by just two 

chains. 

LTCHs are unevenly distributed across the country (Figure 1). Some areas have 

many LTCHs; other areas have none. As shown in Table 2, the 5 states with the 

greatest number of LTCH beds per thousand Medicare beneficiaries account for 39 

percent of the available beds but only 12 percent of the Medicare beneficiary population. Long-term care hospitals serve a wide mix of patients including ventilator 

patients, those requiring wound care, and those with respiratory and other infections. 


Image003.eps
15 

The regulatory distinction between long-term care hospitals and acute care inpatient hospitals is the length of stay. Long-term care hospitals are certified as hospitals and are intended to treat medically complex patients with long lengths of 

stay. Medicare requires that the average Medicare length of stay be more than 25 

days (the average length of stay in hospitals under the acute care inpatient PPS 

is approximately 5 days). Cost sharing and coverage follow the acute care hospital 

rules. 


image004a.eps Image005a.eps
16 

Medicare payments to LTCHs 

Before October 2002, long-term care hospitals were paid on the basis of their average costs per discharge, subject to an annually adjusted limit calculated for each facility. Since then, under the new PPS, Medicare has paid LTCHs under a prospective payment system based primarily on the patient’s diagnosis. Payment rates 

range from $15,665 to $121,376 for a LTCH in an average wage area. These rates 

are higher than those hospitals receive under the inpatient PPS and they are also 

higher than rates for SNFs. In fiscal year 2004, for patients with the most common 

LTCH diagnoses, Medicare rates for LTCHs ranged from about 3 to almost 12 times 

as much as estimated rates for SNFs. 

Under the previous payment system, the change in payment per case was at or 

below the change in cost per case (Figure 2). After PPS implementation, payment 

per case rose rapidly: it increased 5.5 percent in 2003 and 13.2 percent in 2004. The 

case-mix index (CMI) also appears to be increasing for LTCH patients, but CMS 

points out that CMI increases are at least partially due to coding improvement with 

a comparatively larger number of cases being assigned to LTC—DRGs with higher 

relative weights. 

There was little change (less than—0.1 percent) in the reported cost per case from 

2001 to 2003, the first year of PPS. It then increased substantially in the second 

year of the PPS (by 8.9 percent). More complicated LTCH patients could account for 

at least part of this increase in cost per case. However, the average length of stay 

decreased in 2004, which generally would decrease costs. The rapid rate of growth 

in costs could also be attributable to the rapid rate of increase in payments under 

the PPS which would have allowed LTCHs to spend more than under the old system. 

Even though cost rose after the PPS started, payments outstripped them. Margins 

rose rapidly as suggested by the increasing difference between payments and costs 

in Figure 2. Margins reached 9.0 percent in 2004 and we project a margin of 7.8 

percent in 2006. The Medicare margin is the difference between Medicare payments 

and providers’ costs, as a percentage of Medicare payments. 

In our March 2006 report to the Congress, the Commission assessed the adequacy 

of payment for long-term care hospitals. We found Medicare payments for LTCH 

services are more than adequate. The supply of LTCHs, the volume of services, and 

the number of beneficiaries admitted to LTCHs have all increased rapidly since 

2001and access to capital is good. Moreover, Medicare spending for these facilities 

increased twice as fast as volume. As mentioned, margins are high. 


image006.eps
17 

The Commission concluded that long-term care hospitals should be able to accommodate increases in the cost of care in 2007 and recommended that the Congress 

eliminate the update to payment rates for LTCH services for 2007. 

CMS actions 

CMS has reacted to the growth in LTCHs and Medicare spending with several 

regulatory changes. First, CMS established a new policy, the 25 percent rule, which 

CMS intended to protect the integrity of the inpatient PPS by attempting to ensure 

that HWHs do not function as hospital-based units of host hospitals. Second, CMS 

made other changes to increase the accuracy of payments under the new PPS. 

LTCHS can substitute for other settings 

The Commission undertook extensive quantitative analysis, interviews, and site 

visits to understand which beneficiaries use LTCH services, what services they otherwise would have used, and what are the costs to Medicare. We found that LTCHs 

provide post-acute care to a small number of medically complex patients who are 

more stable than patients in an intensive care unit (ICU) but may still have unresolved underlying complex medical conditions. Many of these patients require ventilator support for respiratory problems, have failure of two or more major organ systems, neuromuscular damage, contagious infections, or complex wounds needing extended care. 

Using quantitative analysis, we found that the tendency to use LTCHs is associated with certain diagnoses, severity levels, and the proximity of the facility. Having 

a diagnosis of tracheostomy is the single strongest predictor of LTCH use. Diagnoses 

other than tracheostomy also predict long-term care hospital use—respiratory system diagnosis with ventilator support, acute and subacute endocarditis, amputation, 

skin graft and wound debridement, and osteomyelitis. When we divided each diagnosis into four levels by how severely ill the patient was, those with the highest severity level, regardless of diagnosis, had almost quadruple the probability of LTCH 

use. Beneficiaries living near an LTCH were more likely to use them, and being in 

an acute hospital with a HWH quadrupled a beneficiary’s probability of using an 

LTCH. 

LTCHs can substitute for both hospital care and post-acute care. LTCHs can substitute for the end of an acute hospital stay. About 80 percent of LTCH Medicare 

patients are transferred from acute hospitals and patients who use LTCHs have 

shorter acute hospital lengths of stay than similar patients who do not use these 

facilities. Freestanding SNFs are the principal post acute alternative to LTCHs. Patients who would be most likely to use LTCHs often use SNFs and when patents 

use LTCHs the probability of using SNF care declines—suggesting that SNFs and 

LTCHs are used as substitutes. 

In general, patients who use long-term care hospitals are more costly to Medicare 

than similar patients using alternative settings when we account for payments over 

an entire episode—that is, including payments in both the acute and post acute settings. However, the cost differences narrow considerably when LTCH care is targeted to very ill patients who are most likely to need and benefit from this level 

of care. 

To better understand which patients most need and can most benefit from the 

particular capabilities of LTCHs, we undertook site visits and held discussions with 

LTCH representatives. According to LTCH clinicians, long-term care hospitals: 

• frequently use admission criteria to determine whether patients require an 

LTCH level of care and have sicker patients who are more likely to improve 

• have active daily physician involvement with patients 

• have licensed nurse staffing of 6 to 10 hours per day per patient (much higher 

than other post-acute care settings) 

• frequently employ specialist registered nurses and employ physical, occupational, speech, and respiratory therapists the latter of whom are available 24 

hours per day; and 

• have multidisciplinary teams that prepare and carry out treatment plans. 

We drew on these observations to help tailor our recommendations. 

Commission recommendations 

In its June 2004 Report to the Congress: New Approaches in Medicare, the Commission recommended that Congress and the Secretary define long-term care hospitals by patient and facility criteria that ensure that patients admitted to these facilities are medically complex and have a good chance of improvement. 

• Patient-level criteria should identify specific clinical characteristics and treatment modalities. 

18 

• Facility-level criteria should characterize this level of care by features such as 

staffing, patient evaluation and review processes, and mix of patients. 

Medicare should use more precise criteria to ensure that LTCHs treat only appropriate patients. Criteria should describe the level of care required by LTCH patients 

so that their needs are clearly distinguishable from those of less resource-intensive 

patients who should be treated in other less costly settings. LTCH criteria should 

focus, to the extent possible, on patients and their care needs, rather than on facility 

characteristics. 

Patient-level criteria would identify specific clinical characteristics and treatments required by patients cared for in LTCHs. All of these criteria would be intended to ensure that the patients admitted to LTCHs require an intensive level of 

resources and have a good chance of improvement. 

National criteria could be required for both admission and discharge for each of 

the major categories of patients treated in LTCHs, including respiratory, infectious 

disease, other medically complex, wound care, ventilator-weaning, and cardiovascular or peripheral vascular patients. Because these criteria would be specific to 

each of the most common case types, they would need to be as detailed and clinically relevant as possible. Discharge criteria would ensure that patients are medically ready for discharge to less intensive and medically appropriate alternative care 

settings. 

Patient mix and severity criteria are directed toward ensuring that LTCHs treat 

only medically complex cases. For example, one requirement could be that a high 

share (e.g., 85 percent) of a facility’s patients must be classified into broad diagnosis 

categories—such as complex medical, complex respiratory, cardiovascular, ventilator-dependent, or extensive wound care—and that a large share (e.g., 85 percent) 

of an LTCH’s patients demonstrate a high level of severity of illness at admission. 

Facility-level criteria should delineate features of the care provided in LTCHs. 

Some examples include a patient evaluation and review process, a patient assessment tool, and the availability of physicians. A standard patient assessment tool 

would ensure consistency in the assessment process. Though most LTCHs already 

use assessment tools all facilities should use the same tool that emphasizes clinical 

and functional assessments of patients. The level of physician availability should be 

specified. Physicians’ presence and their active involvement with patients are key 

aspects of the care that differentiates long-term care hospitals from SNFs. Also, requiring multidisciplinary teams of professionals, including physicians, to prepare 

and carry out treatment plans would encourage a team-based focus on patient care. 

The 25 day length of stay criterion, the only criterion currently in place for 

LTCHs, is intended to ensure that patients require a high level of resources. Without other criteria, however, the length of stay criterion does not prevent SNF-level 

patients from being treated in LTCHs at much higher costs to Medicare. Over time, 

as patient criteria clearly delineate the types of patients appropriate for treatment 

in LTCHs, CMS could reevaluate use of this criterion. 

A minimum staffing requirement would ensure that LTCHs provide an intensive 

level of care that is comparable to a step-down unit (from ICU-level care) in a hospital and would be consistent with long-term care hospitals treating medically complex patients who cannot be treated in SNFs. 

The Secretary will need to monitor the compliance of LTCHs with facility—and 

patient-level criteria. Therefore, the Commission also recommended that the Secretary should require the Quality Improvement Organizations (QIOs) to review 

long-term care hospital admissions for medical necessity and monitor that these facilities are in compliance with defining criteria. A recent QIO medical record review 

found that 29 percent of 1,400 randomly selected LTCH Medicare admissions in 

2004 did not need hospital-level care. 

The Commission’s recommendation to better target the patients treated in longterm care hospitals should not be taken as a blanket endorsement of LTCHs and 

their role in the post-acute care continuum. The rapid growth in long-term care hospitals, the opportunities for excess profit, and the fact that patients get care in other 

settings in markets where LTCHs do not exist all raise concerns for the Commission. The growth and incentives of the HWHs are of particular concern. 

Quality 

Refinements to the LTCH payment policies should be consistent with Medicare’s 

longer-term goals for payment policy. These goals include improving quality and 

promoting patient care in the most appropriate and cost-effective setting. Better 

measures of quality for long-term care hospitals are needed. Additional measures of 

quality at the hospital-specific level, probably not available from administrative 

data, may come from the LTCH industry. One association and a large chain report 

independent efforts to develop quality indicators. If the data for these indicators 

19 

were available, CMS might use them to monitor LTCH care. For example, both organizations plan to measure rates of weaning from ventilators, pneumonia contracted while on a ventilator, decubitus ulcers acquired in the LTCH, blood stream 

inflections, falls, and use of restraints. However, the specific measures for these indicators differ widely between the two organizations. It is a positive step that the 

industry is starting to develop new quality indicators. However, the next steps that 

should be taken are CMS involvement, greater validation of the measures, and decisions on a data collection strategy. 

f 

Chairman JOHNSON. Do you both agree that we should be moving to a criteria-based system, both patient and facility criteria? 

Mr. KUHN. Yes, we do agree with the recommendations 

MedPAC made in 2004 and agree with your statement, that, yes, 

I think better classification, better criteria for both facility as well 

as patients are long overdue here. 

Chairman JOHNSON. Dr. Miller, do you agree with that? 

Mr. MILLER. Right, it is a recommendation. 

Chairman JOHNSON. Well, it seems to me that if you have a 

criteria-based system that is correct, then that addresses the shortstay issue; that addresses the possibility of an acute care transfer 

to a long-term care facility that is inappropriate, does it not? 

Mr. KUHN. I think it would certainly help us. I don’t know 

whether that gets us to the end game, because, you know, having 

the classification system is absolutely key, but also payment policy 

can drive behavior as well. Synching of both the payment policy as 

well as the classification system are going to be absolutely important components as we go forward. 

Chairman JOHNSON. Dr. Miller? 

Mr. MILLER. From our point of view, and we said at the end of 

our report that we think patient and facility criteria were important to define this benefit. Still at the end of the report, and as I 

tried to do in my opening comments, we think there are still potential concerns and that you might want, even within the payment 

system, some kinds of adjustments to capture inappropriate behavior. We do think that the criteria are the way to go and should be 

pushed forward. 

Chairman JOHNSON. I would hope that if we had good criteria, 

we wouldn’t have to have artificial additional structures. I see your 

short-stay policy as the parallel in the long-term care arena to the 

transfer policy in the acute care. Is that unreasonable? 

Mr. KUHN. I think the tools that we have are—or I should say 

the strongest tool that we have is really payment, and so to deal 

with the post-acute care policy we had last year and last year’s Inpatient Prospective Payment System (IPPS) rule was really designed to make sure that when we had an episode of care and we 

were paying for an episode of care in the acute care side, we wanted to make sure that we got those full services, and that was to 

try to prevent premature transfer to some post-acute care facility. 

The same holds true here, that we really want to pay accurately 

for the care that is provided, and so, that is what is driving the 

proposal that we have before us now with the short-stay outlier 

policy. 

Mr. MILLER. What I would say about that is that if you think 

about, and I am not sure this is a lot different than what Herb is 

20 

saying—If you think about payment systems and you are trying to 

build these on the basis of average and you build your payment per 

case around what is happening in the field, in the delivery at that 

time, just like in IPPS, you still might want to deal with the extreme cases differently in the payment system. You have outlier 

payments when a case becomes extremely expensive, and similarly, 

in a system of averages, you might want to address the other end 

of the distribution when a case is extremely different than what 

you expected the average to be. 

Chairman JOHNSON. Yes, and we did do that in the acute care 

setting. We addressed both the transfer payment and the outlier 

issue at the same time, hoping that that would balance out. 

This, I see a little differently, because when you define short stay 

as five-sixths of the mean and you begin to drop off those short 

stays, you put in place a mathematical system that is sort of inexorable. After you deal with the first set of short-stay patients, and, 

remember, you can deal with them in a number of ways—You can 

deal with them in keeping them in the acute care setting or sending them to a nursing home, and those are the ones you are sort 

of after. You can also deal with them by not accepting certain diagnoses because of the tremendous unpredictability of that patient, 

and we are going to hear more of that in the next panel. How much 

do we know about short stays? How predictable is it, how long a 

patient with this kind of complexity will need to be in the hospital? 

If you look at the comparison by diagnostic group, between the 

length of stay in an acute care hospital and the length of stay in 

a long-term care hospital, it is about 3 days to 1. 

There is substantial difference between these patients, and if you 

lop off the bottom, then the next five-sixths is just going to include 

more complex patients and so and so up the ladder because it is 

five-sixths in every diagnostic group. You are going to have fivesixths of the ventilator patients and five-sixths of this and fivesixths of that. Every year you are going to get more and more complex patients. You are going to be moving up the complexity ladder 

through this automatic system. That is not quite exactly what happened in the acute care sector. This seems to be a far less balanced 

approach, a far more dangerous approach, and when you look at 

just the Lewin Study and its prediction in terms of the hospitals 

that will go from positive to negative margins, almost all of the institutions have positive margins now. One could say the margins 

are too high, but one could also be very concerned about essentially 

most of the hospitals going to a negative margin under the new 

payment method—in fact, all but the category of hospitals of 300 

beds or more. 

I am concerned not only about the tremendous shift that will 

take place under this proposal on average, all hospitals going from 

an average margin of 9.17 percent to an average negative margin 

of 4.9 percent. That is a huge swing. Institutionally, that is a huge 

swing. Then, when you look solely at the ones who end up with 

positive margins are the big institutions, I do not want payment 

policy to drive bigness. I am worried, terribly worried about the impact of this, and I think it is due to the definition of short stay as 

being almost all the patients, five-sixths. 

21 

What is your view, Mr. Kuhn, in proposing this of its ongoing impact on the existence of LTCHs? 

Mr. KUHN. That is a good observation you make, and I think 

the observations you made there are what we have heard from a 

lot in the stakeholder community that we hope, we get comments 

during this open public comment period. I think—— 

Chairman JOHNSON. Excuse me. I should have asked that 

question. What did your analysis show before this? 

Mr. KUHN. Yes, and I think your point is well taken. These are 

medically complex patients, and that is the whole point of what we 

are trying to drive here to make sure that we pay accurately for 

them. 

Let me give you some information here that we have looked at 

and give you a sense of the ideas of why this proposal is out there. 

In the acute care setting, the average length of stay is about 5 

days, and so if someone stays 4 days, the delta there is not that 

great in terms of the resources consumption, the activity that is 

there. If you are looking at these patients where the average length 

of stay for the facility and the only classification criteria is 25 days 

or more, and someone is there, presumably, for 30 days, but they 

are out in 12, that delta is very large, and I think that is something that we have to raise as a big concern about in terms of the 

order of magnitude here in terms of the dollars, the lengths of stay 

that we have, and how we are dealing with these short-stay outlier 

patients. 

In LTCHs in 2004, we had about 118,000 cases. Of those cases, 

44,000 were short stay. Let me give you a couple of facts about 

that. Sixty percent of those patients, about 26,000, 27,000, were out 

in 14 days or less. In fact, 23 percent of them were out in 7 days 

or less. the point here behind our policy is really trying to say if 

they are looking at—if they are taking acute care patients, maybe 

should we be thinking about paying at the acute care rate for these 

facilities. 

Chairman JOHNSON. Well, see, what disturbs me about your 

policy is it does not focus on 14 days or less. 

Mr. KUHN. No. That is right. It looks at the entire short-stay 

outlier threshold, and—— 

Chairman JOHNSON. The definition of short stay is not like in 

acute care, where you have an average Diagnosis-Related Group 

(DRG) and then short stay is something below average, a certain 

numbers of days below average. It is five-sixths of the mean. 

Mr. KUHN. Right. Again, the point is that many of these are 

very, very short stay, and I think this is something that as the industry has come in and presented their information—and I will say 

that they have been very responsible in coming forward with good 

information. These are the kind of points that we need to have in 

the notice and comment period that we are in now so we can evaluate, we can analyze as we move forward to a final regulation. 

Chairman JOHNSON. As you proposed this, did you make any 

runs of your information as to what the impact would be? If so, 

what was your estimate of the impact? 

Mr. KUHN. The impact right now for the short-stay outlier policy is about savings of $440 million. It is about 11, 11.4 percent, 

I believe, reduction in payment. 

22 

Chairman JOHNSON. Have we ever proposed for any other provider an 11-percent reduction in a single year? 

Mr. KUHN. For institutional providers, I am not aware. 

Chairman JOHNSON. I don’t remember any reduction of that 

magnitude. Mr. McCrery? 

Mr. MCCRERY. Thank you, Madam Chair. You asked a lot of 

good questions, and you covered much of what I was going to get 

into, but let me just probe a little more. The LTCHs are paid on 

a PPS; is that right? 

Mr. KUHN. That is correct. 

Mr. MCCRERY. That PPS, I assume, is based on kind of an average length of stay? 

Mr. KUHN. Yes, basically there is kind of a parallel system. We 

have the DRG system that is kind of a charge-based weight system 

in there, and the LTCH is basically—the LTC. DRGs is basically 

a very parallel system to that with the same kind of weighting 

process that goes on. It is based on averages determine the 

weights, the values for each and every DRG, and then, of course, 

that is multiplied times the standardized rate. 

Mr. MCCRERY. That is why you talked about the delta between 

the short stays, the outliers, and the average stay in an LTCH. 

Mr. KUHN. Yes, to give you a sense of the order of magnitude, 

right now, I think for the acute care side, the standardized rate is 

about $4,700; for LTCHs it is $38,000. It is a huge difference. If 

you have something that is a weight of 1.5 for each one, you can 

see the dollar differentiation that we have here, and that is why 

I think it raises a big question for us if we have folks that look like 

acute care patients. Should they really be treated as acute care patients and not in an LTCH facility? 

Mr. MCCRERY. Okay. Well, you know, I think your concern is 

appropriate, but like the Chair, I would question the methodology 

of the five-sixths of the mean, because if you achieve the logical result, which would be LTCHs, if they are faced with only getting reimbursed—what the acute care hospital is going to get reimbursed— they are not going to take those patients. Those patients 

are going to stay in the acute care hospitals. you will reduce the 

population of the LTCHs, but you are still taking five-sixths of the 

remaining mean. you see, it just kind of gets smaller and smaller. 

I understand what you are trying to get at, and I think it is a 

legitimate pursuit. Perhaps, the methodology needs to be scrubbed 

a little. You also made a point a couple times, maybe both of you, 

about in areas where LTCHs are present, acute care hospital stays 

are longer. Is that right? 

Mr. MILLER. Shorter. Where long-term care hospitals are 

present, acute care hospital lengths of stay are shorter. 

Mr. MCCRERY. Acute care hospital stays are shorter? 

Mr. MILLER. Yes, so that, in other words, the presumption here 

is that someone leaves the hospital earlier and goes to a long-term 

care hospital. 

Mr. MCCRERY. Okay, yes. The opposite is true as well. In areas 

where LTCHs are not present, the acute care hospital stays are 

longer. That is what I was trying to get at. 

Mr. MILLER. Right, right. 

23 

Mr. MCCRERY. Well, duh. I mean, if you don’t have an LTCH 

to send them to and they have these complex problems, I mean, 

they are going to keep them. They may not be able to treat them 

as effectively as a LTCH, but there is nowhere else for them to go. 

I don’t see the point of that data, really. 

Mr. MILLER. Well, I think what we were driving at, if I understand your question—at least let me get a couple of distinctions in. 

Mr. MCCRERY. I may not understand my question either. 

Mr. MILLER. No, it is quite all right. 

Mr. MCCRERY. We will talk, though. 

[Laughter.] 

Mr. MILLER. Okay. It is complicated. I mean, what we were 

going at was, okay, you have markets with and without. When 

these things present in a market, what happens? Relative to what 

the average is and what is going on, you know, the secular trends 

in the data, when these enter the market—what happens is—and 

it is not just hospitals—skilled nursing facility services go down, 

and the length of stay in the hospital goes down. What these things 

seem to be doing is taking the place of a person staying in a hospital for a longer period of time, say in a step-down unit or something like that, or in some communities these people go to skilled 

nursing facilities; although, I would like to stress there that the 

ability for a skilled nursing facility to deal with these kind of patients varies, you know, from facility to facility and market to market. 

We are just trying to say if these didn’t exist, the patient would 

likely stay in the hospital longer or head to a skilled nursing facility. When they present, that is where you see the changes. Then 

the reason we were doing all of that was to figure out whether it 

cost Medicare more or less than if they had just stayed in those 

settings. That is what we are all driving at. 

Mr. MCCRERY. Okay. Well, I think it is clear that if the patient 

stayed in those settings, it would cost Medicare less because you 

pay those treatment facilities less than you pay the LTCHs. 

Mr. MILLER. If I could just get one—that is what we found, but 

just one subtlety past that. If you focus on a certain group of patients, patients with certain diagnosis—ventilator dependency, 

need for wound care, infectious disease, that type of thing, and the 

most severe of those patients, and then you ask the same set of 

questions again, the difference in cost is not as great. 

Mr. MCCRERY. Yes. 

Mr. MILLER. If you focus it on certain patients, then the longterm care hospitals, because you are looking over an episode of 

care, do not appear to be as expensive relative to other settings. 

Mr. KUHN. I would just add the point you are making is kind 

of part of this overall larger debate of what we are trying to do 

here in the entire post-acute care. I know that Chairwoman Johnson had a terrific hearing on this last year where we really began 

to look at thoughtfully, the patient care needs instead of the name 

of the facility on the door, because right now we pay one rate at 

one facility, another rate at another facility, but it does not really 

logically follow what does the patient need and what is the appropriate payment for that patient. So—— 

24 

Mr. MCCRERY. There is a study underway right now to get at 

that. 

Mr. KUHN. Part of our effort, in fact, in the Deficit Reduction 

Act (P.L.109–171), you gave us additional authority to go out and 

do a demonstration in this area and do even more work in this 

area, and part of these changes that we are talking about here are 

a logical extension of that and incremental movement in that direction. 

Mr. MCCRERY. You are not—my time has expired. 

Chairman JOHNSON. That is okay. 

Mr. MCCRERY. You are not suggesting then, as an uninformed 

observer might conclude based on some of your statements, that 

LTCHs are just not needed? 

Mr. KUHN. No, I wouldn’t make that statement at all. I think 

they have a good role, and for those very medically complex patients, they do very good work. 

Mr. MCCRERY. If they are needed. If they have a place in our 

health care system, then it seems to me that this study is going 

to tell us a lot about who should go to these LTCHs and how much 

they should be paid. I echo the Chairwoman’s comments that 

maybe we are putting the cart before the horse here in adjusting 

the payment rates before we complete this study, to get a more 

complete picture of the appropriate place in our system for these 

settings. 

Mr. KUHN. I think that is a good observation, and we have 

heard that in comments from the stakeholders in the industry 

about this. Our thoughts are this: As I indicated earlier, with the 

short-stay outlier policy that is about $440 million. We will have 

this RTI study this spring. There is going to be some analysis, discussion with the industry. It may raise additional questions that 

we have to answer. It could be several years before we are ready 

to move forward on this, and I think as stewards of the trust fund, 

the opportunity from things that we have seen in terms of these 

short-stay patients, we think it is appropriate to go ahead and 

move forward with this policy. That is why we have proposed it. 

Again, we are in the comment period, but that is why we proposed 

it. 

I hear what you are saying, and I think that others have raised 

that as well. From our aspect, it could be a few years before we 

get to that stage. Meanwhile, we think there is an opportunity, because the only lever that we have is the payment changes to go 

ahead and make some incremental adjustments here to move forward, and that was the basis of our proposal. 

Mr. MCCRERY. Okay, but I would just urge you to scrub your 

payment proposal a little bit more. 

Mr. MILLER. Could I say one thing about that, too? I am also 

aware of that study, and I think Herb said it here right at the end 

of his comments, you know, several years. I think there are two 

ways to think about it. Fortunately, or unfortunately, we have a 

bunch of silos in our post-acute care systems, and I think the way 

we think about it is let’s try and get that as right as possible while 

we are trying to get above it and get it right across everything. we 

would urge that the criteria be thought through here, too, so that 

you are defining what is happening inside this box. You know, even 

25 

though, maybe, we do not want all these separate boxes, but in the 

short run, that is what we are living with. 

Mr. MCCRERY. Okay. Thank you, Madam Chair. 

Chairman JOHNSON. Thank you. I am very concerned by your 

answer, Mr. Kuhn, to Mr. McCrery’s inquiry. First of all, the RTI 

study, which we all look forward to, was actually due January 1, 

2005. We had this series of hearings planned, we have others in 

this series, to look at the criteria in the whole post-acute care 

arena, not just long-term care hospitals—rehabilitation hospitals, 

nursing homes, home care—because it isn’t just LTCHs that need 

to have clearer criteria. The whole system needs to have clearer 

criteria so that you can get over the sort of placement between the 

different settings, but also guarantee that Medicare patients will 

have access to the advanced care that they need, depending on 

their illness and state of physical well-being. 

We are behind the wheel on this, but I am very disturbed that 

you think that it might take you several years to do criteria-based, 

and that you would be willing to go ahead with this short-stay proposal before that, because I see this as absolutely the old world, 

blunt instrument. You are going to hear in the panel or your people 

will hear in the panel, and you saw yesterday the industry is far 

ahead of you. There are criteria based proposals that we would be 

better off starting with. If we do a criteria-based proposal, then we 

will see what portion of this problem of under 14 days is criteriabased and just that you cannot estimate who is going to die or who 

is going to get well fast and how much of it is actually the patient 

is in too expensive a setting for that patient’s medical needs. 

I certainly—if that is what you are thinking, then I do want to 

have your staff provide me with copies of the runs that your staff 

did to see what would be the impact of a short-stay proposal you 

are making, because I want to see if they knew at the time when 

they came to the 11 percent, because the 11 percent is about what 

Lewin comes to, too. I want to see did they realize that everybody 

was going to be negative margins? Did they realize that the average margin in the South was going to go from plus 7 to minus 7 

and that 78 percent of the providers were going to have negative 

margins? That is just in the South. 

In the Midwest and in the North, 55 percent, 56 percent would 

have negative margins; 52 percent would have negative margins. I 

am not interested in a system that treats people as complex and 

sick as these people are, needing as many services and as many 

physicians available to them. 

I want to see those runs because I want to see exactly what your 

people thought you were doing, not just in terms of how much 

money you were going to save, but what was going to be the impact 

on the provider community. 

The last comment. This mechanistic issue is a big issue because 

the five-sixths 1 year is going to be five-sixths—somebody whose 

normal DRG is 65 days, and they got 55, or whatever five-sixths 

is. That is a lot of time. If you pay them at an acute care rate, you 

don’t even pay short stays in an acute care hospital, an acute care 

day rate. You pay them double the first day. To go from the acute 

care setting to a long-term care setting and propose that you pay 

an acute care rate, I mean, that worries me. It worries me that this 

26 

project is not only a very blunt instrument, but the lowest ball on 

the totem pole. I can’t tell you any comparable experience that I 

have had, and I have been serving on this Committee since, I don’t 

know,1979 or something. 

I do want to see the work sheets and know how you got here because this isn’t where I am interested in going myself. I am interested in going to a criteria-based system, and you will hear both 

sides, both the big national chains and the smaller nonprofits, have 

done an enormous amount of work and are ready to hand you a criteria-based system. With a year’s experience with that, then we 

could see what is the real honest short-stay problem. 

Mr. KUHN. We would be happy to give you all the impacts that 

we have in the regulation and any others that would help you understand kind of our analysis and what we did. 

Chairman JOHNSON. It is the analysis that I am interested in 

understanding. 

Mr. KUHN. You bet. 

Chairman JOHNSON. Thank you. Thank you very much. Anything else? 

Mr. MCCRERY. No. 

Chairman JOHNSON. Thank you very much. We will start with 

the next panel. 

Chairman JOHNSON. Welcome, Mr. Altman. Will you proceed, 

please? 

STATEMENT OF WILLIAM M. ALTMAN, SENIOR VICE 

PRESIDENT, KINDRED HEALTHCARE, LOUISVILLE, KENTUCKY 

Mr. ALTMAN. Good afternoon, Chairman Johnson, Mr. McCrery. 

Thank you for the opportunity to address the Subcommittee on the 

role of long-term care hospitals in the health care continuum. 

My name is Bill Altman, and I serve as senior VP of Compliance 

and Government Programs for Kindred Healthcare. As you noted 

in your introductory remarks, Kindred has a diverse set of postacute services ranging from long-term acute care hospitals, nursing 

facilities, rehabilitation services, and pharmacy services, and we 

operate in over 40 States. I am also here on behalf of the Acute 

Long Term Hospital Association, ALTHA, which is the trade association for LTCHs. It represents over 60 percent of LTCHs nationwide. 

In the time that I have, I want to basically address three issues. 

First of all, I want to talk about the role of LTCHs in the health 

care continuum, but in the broader context of the deliberations of 

the Subcommittee and MedPAC about the entire post-acute space 

in an attempt to rationalize it. Then, I want to amplify a little bit 

on your comments about the impact of this proposed CMS policy 

on LTCHs. Then, I want to talk specifically about why the CMS 

policy proposal is flawed. 

With respect to the role of LTCHs, let me be clear. Kindred and 

ALTHA support the Committee’s initiatives to make sure that 

Medicare beneficiaries are placed in the most appropriate setting 

and that the payments are designed first and foremost based on 

the clinical needs of the patients and the intensity of the services 

they provide. Simply put, the proper role for LTCHs, as we have 

consistently told this Committee, MedPAC, and CMS, is to treat 

27 

the small number of medically complex, severely ill patients that 

require the intense unique services that LTCHs provide. As you 

noted, we have put proposals forth that would specifically be designed to ensure that that is the proper role of LTCHs. 

Now, unfortunately, as you pointed out, CMS has not reciprocated our overtures to them in terms of pursuing this shared policy goal, and they have resorted to the blunt payment approach 

that you talked about. I applaud you for asking for the data that 

they relied on and the impact analysis. We have asked for the 

same data. We have also asked for data on severity of illness of the 

patients, both among the short-stay outliers and the rest of the 

LTCH patients, and, frankly, we have not received that. We have 

done our own analysis, and I want to talk a little bit about that. 

Before I do, I do want to talk a little bit more about the impact 

and put it in the context of total Medicare spending. As you noted, 

despite growth, LTCH spending from Medicare amounts to around 

1 percent, and it has been consistent over time, and that is an important contextual piece to understand the increase in LTCH 

spending. 

I would also note, to digress for a moment here, that since the 

implementation of the Hospitals In Hospitals (HIH) rule, we have 

seen a significant decline in the number of new LTCHs opening. 

This is based on CMS’ own data, and I am not quite sure where 

CMS gets its information from to assert that we are seeing continued growth in LTCHs, particularly among free-standing LTCHs, 

which is primarily what Kindred does, because in 2005, according 

to CMS’s own data, we saw a dramatic decline in the number of 

HIHs that were started, and that is when the HIH rule really 

hasn’t gone fully into effect. It is phased in over a number of years. 

We saw one fewer—ten—new free-standing LTCHs that achieved 

provider numbers in 2005, and that is compared with eleven the 

year prior. I am not quite sure where CMS gets its information to 

suggest that we are continuing to see rapid growth. 

I think the HIH rule has begun to take hold, and we support rational growth limited to LTCHs treating medically complex, severely ill patients, and I think we are beginning to see that. Certification criteria will achieve that in a much more direct way. We 

don’t think it should take 2 to 3 years. MedPAC made their recommendation in 2004, and we are ready to go, and we want to 

work with this Committee and CMS to see proper certification criteria put in place. 

The other thing I want to emphasize is that as a percentage of 

what the Administration has proposed in terms of Medicare savings; although LTCHs only represent 1 percent of total Medicare 

spending, in fiscal year 2000 this rule alone accounts for 10 percent 

of the savings proposed by the Administration. We think that is 

disproportionate. 

Let me jump right to the short-stay outlier policy. It has been described and you have pointed out some of the logical flaws and the 

actual flaws in it and questioned some of the data. Let me just 

walk very quickly through four assumptions that CMS has made 

in justifying their policy and point out through their own data why 

it is flawed. 

28 

First of all, CMS makes the assumption that LTCH short-stay 

patients—and as you pointed out, many of these patients are not 

short-stay. They have a very long length of stay relative to other 

patients. They make the assumption that those patients are clinically similar to patients in the short-term acute care hospital and 

that is the rate that they want to pay. That is not accurate. 

We took their same data, the MedPAR data, and assigned severity of illness ratings to all LTCH patients, short-stay LTCH patients, and compared them with the short-term acute care hospital 

patients. What we see is two things: First of all, there is really no 

difference between the short-stay LTCH patients and the regular 

LTCH patients in terms of their severity of illness. The second 

thing we see is that almost twice as many short-stay LTCH patients are in the highest severity of illness categories as compared 

to the short-term hospital world. 

Now, that has significant implications not only for payment. It 

is easy to see why the payment shortfall exists that you pointed out 

and the negative margins that Kindred, too, will experience as a 

result of this rule. It is also important to know that when the patient comes to us, they look basically the same. We do not know 

whether they are going to be short stay or long stay or very long 

stay. Many are very long stay, high-cost outliers. that is the first 

assumption that is actually false based on the data from MedPAR 

database, Medicare’s own data, with respect to severity of illness. 

The second assumption that CMS makes is that the short-stay 

patients, just by virtue of their label of short stay, as you pointed 

out, Mrs. Johnson, they have a similar length of stay to the shortterm acute care hospital patient. We also know that that isn’t true. 

Even the short-stay patients have an average length of stay of almost 13 days, and that is based on the five-sixths threshold. That 

compares with an average length of stay in the short-term hospital 

world of just over 5 days. 

It is easy to see when you put those two pieces of information 

together—the high severity of illness and the long length of stay— 

why there is such a significant payment shortfall and why it is inappropriate to use the short-term hospital rate. 

The third assumption that you pointed out, Mrs. Johnson, is that 

LTCHs can predict in advance who is going to be short stay, who 

is going to be normal stay, who is going to be long stay, and, more 

importantly, what the clinical outcome is going to be of those patients when they come to us. With this medically complex population, it is impossible to predict, particularly who is going to be 

successfully treated and live or die. Many of these patients, as it 

has been pointed out, are dependent on ventilators for breathing, 

and the science is not there in terms of being able to predict who 

is going to successfully wean from that ventilator. That is a big assumption made in this proposed rule, that we can actually change 

our behavior. We will just not admit short-stay patients. The physicians who make the discharge decisions and the admission decisions are unable to predict in advance, and I would argue should 

not predict before the full course of care is attempted and completed in the LTCH. 

Finally, the last assumption, as you pointed out, is that the 37 

percent of cases that happen to fall in by CMS’ own definition as 

29 

short-stay outliers is too high and that we can do something about 

it. Mrs. Johnson, you have pointed out the mathematical inevitability of that statistic, but I would add one thing to that, and that 

is, there is a built-in disincentive for LTCHs to knowingly admit 

patients who are going to be short-stay. If we do that on a routine 

basis, we are no longer going to qualify as an LTCH under the current criteria, the 25-day length of stay. You will notice from our 

proposal for certification criteria, we are actually recommending 

that we retain the 25-day length of stay as a requirement and put 

on top of that patient and facility criteria. That is one of the reasons, because we do think LTCHs are appropriate for the longerstay patient on average, as you have pointed out. 

I would just conclude by saying that I think that the—we do believe that the policy proposal is excessive. It results in negative 

margins. We have not been able to find the data to support it based 

on their own data or what we have asked for, which they have not 

given it to us, and I think that that is a very problematic. Again, 

we think that certification criteria would address the legitimate 

policy issues that have been raised and would address patient 

placement, growth, and margin, and I have to end by saying that 

the thing that is most disturbing to me about the rule is the lack 

of discussion about quality. We have provided a lot of data about 

the quality outcomes we achieve, and the New York Times article 

that referenced the critical shortage of ventilators in this country 

in the event of a bird flu epidemic is more proof of the needed role 

of LTCHs in our health care continuum. 

Thank you very much. 

[The prepared statement of Mr. Altman follows:] 

Statement of William M. Altman, Senior Vice President, Kindred 

Healthcare, Louisville, KY 

Good afternoon Chairman Johnson, Ranking Member Stark and members of this 

Subcommittee. Thank you for the opportunity to comment on the role of Long Term 

Acute Care Hospitals (LTCHs) in the health care continuum. 

My name is Bill Altman and I serve as Senior Vice President of Compliance and 

Government Programs for Kindred Healthcare, which is based in Louisville, Kentucky. Kindred is a leading provider of diversified long term care services, with 78 

Long Term Acute Care Hospitals, 248 skilled nursing facilities, and several assisted 

living facilities providing services in 40 states. We also provide contract rehabilitation and pharmacy services to hospitals, nursing centers, outpatient centers and assisted living facilities nationwide. I am also testifying as Chair of the Public Policy 

Committee for the Acute Long Term Hospital Association (ALTHA), the association 

representing over two-thirds of LTCHs nationwide. 

We are grateful for the opportunity to testify about a recent rule proposed by 

CMS that reduces payments to LTCHs to a point where care is jeopardized for the 

critically ill Medicare patients LTCHs serve. But first I would like to make a few 

comments on the broader context of the Subcommittee’s discussions about the role 

of LTCHs in the health care continuum and your efforts to promote a rational policy 

for the post-acute sector. 

Kindred is uniquely situated to assist policymakers to define the proper role of 

LTCHs in relation to other providers such as SNFs, Inpatient Rehabilitation Facilities, Hospice and Home Health because of the diversity of our service lines. Let me 

be clear from the start—Kindred and ALTHA support the Subcommittee’s initiatives 

to make sure that Medicare beneficiaries are placed in the most appropriate setting 

and that Medicare payments are based first and foremost on the needs of patients. 

Simply put, the proper role for LTCHs is to treat the small number of medically 

complex, severely ill Medicare beneficiaries who can benefit from the unique set of 

intensive services that only LTCHs are equipped to provide. To support this policy 

goal, ALTHA testified before this Subcommittee in June of 2005 and expressed our 

support for a range of policies related to post-acute care. Specifically, we recVerDate Aug 31 2005 05:49 Dec 23, 2006 Jkt 030439 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 E:\HR\OC\30439.XXX 30439
30 

ommended four guiding principles we believe policymakers should follow in this 

area: 

1. First, policy should seek clearer definitions of the distinct role of each postacute provider, while recognizing that a certain amount of overlap is inevitable and necessary to ensure continuity of care across settings; 

2. Second, policy should explore development of a unified post-acute assessment 

instrument. Development of such an instrument is an important prerequisite 

to deciding appropriate patient placement, coordinating care, and possibly determining appropriate payment; 

3. Third, consistent with MedPAC’s recommendations, patients should be cared 

and paid for in the most appropriate setting, based on an objective evaluation 

of clinical characteristics, needs and resource intensity. Patients who can be 

safely and effectively cared for in SNFs should not be treated and paid for in 

LTCHs or IRFs. Likewise, severely ill, medically complex patients should have 

access to the intensive set of services only available in LTCHs; 

4. Fourth, also consistent with MedPAC’s recommendations, policy should require not only that patients be placed in the appropriate setting, but that providers have the capacity to meet the needs of patients, in terms of staffing 

levels, staff skill mix, availability of diagnostic tests, sophistication of technology and intensity of service. 

Chairman Johnson, as we have discussed with you and your staff, Kindred has 

begun our own work in developing tools to evaluate patients for the purposes of 

making appropriate decisions about placement and care planning. And ALTHA has 

put forth specific policy proposals to refine the current LTCH certification criteria 

to help ensure that LTCHs admit, treat and get paid for medically complex Medicare beneficiaries. These are critical steps towards rationalizing the entire postacute sector and we stand ready to work with policymakers through demonstration 

projects or joint research studies to advance policy in this area. 

Unfortunately, all of our attempts to work with CMS toward these shared policy 

goals have not been reciprocated. Instead, CMS has resorted to the bluntest of policy 

approaches—draconian payment cuts at unprecedented levels—with little to no 

transparent data and without even considering other mechanisms that this Subcommittee and MedPAC have consistently endorsed. More troubling, CMS has taken 

these actions without even discussing their proposals with other branches of government or the LTCH provider community. Nor has CMS analyzed the mass of data 

readily available to it showing the defects in its policy. Our repeated requests for 

the data they did rely on have gone unanswered. 

Impact of CMS Proposal 

As you heard from earlier testimony, CMS proposes not only to freeze LTCH rates 

by holding the LTCH market basket update to zero, they propose cutting rates an 

additional 11.1% by applying a policy that assumes, wrongly, that some 40% of 

LTCH patients whose length of stay is shorter than the average for all LTCH patients should have never been admitted to the LTCH in the first place. Last Friday, 

ALTHA submitted comments to CMS detailing why this policy is flawed, and we 

have provided these comments to the Subcommittee as part of our written testimony. 

Before summarizing why CMS’s policy proposal is wrong, I urge the Subcommittee to evaluate it in the context of total Medicare spending and the recent 

deliberations in Congress about Medicare savings. Despite recent growth in the 

number of LTCHs, LTCHs still represent only about 1% of total Medicare spending. 

Specifically, in 2005, Medicare spending on LTCHs represented just 1.3% of total 

Medicare spending. Yet, in the Administration’s budget, which proposes an addition 

$36 billion in Medicare savings over the next 5 years, over 7% of proposed Medicare 

savings comes from the LTCH rule we are discussing today. In fiscal year 2007 

alone, over 10% of the proposed savings comes from LTCHs. This level of cuts is 

disproportionate to the share of Medicare attributable to LTCHs. It is important for 

the Subcommittee to understand that these LTCH cuts would be imposed by regulation—unlike other parts of the proposed Budget, no Congressional action is needed 

or requested for these cuts to take effect on July 1st of this year. 

It is not surprising therefore that CMS’s proposal violates the threshold principle 

that Medicare payment systems should at least attempt to cover costs. On the contrary, CMS’s proposal fails to cover the costs that LTCHs incur in caring for Medicare’s most medically complex beneficiaries. For Kindred, CMS proposes to pay rates 

in the upcoming rate year that fall short of our actual costs by 6.2%. Revenue shortfalls of this magnitude cannot help but call into question our ability to continue to 

provide the level and intensity of service our patients expect and deserve. 

31 

CMS Policy on ‘‘Short Stay Outlier’’ Patients is Flawed 

The major reason that CMS’s proposal cuts rates so significantly is the way it proposes to pay for so-called ‘‘short stay outlier’’ patients. As you know, LTCH payments are divided into 3 categories: 1) Normal DRG payment for patients whose 

length of stay is about average; 2) High Cost Outlier payments for patients with 

usually high and unpredictable costs of care—those whose length of stay is longer 

than average; and 3) Short Stay Outlier payments for patients whose length of stay 

is shorter than average. 

It is important to understand what a short stay outlier patient is, and what it 

is not, to understand why CMS’s policy is flawed. CMS defines ‘‘short stay outliers’’ 

as those patients with lengths of stay less than 5/6ths of the mean length of stay 

for all patients in the same diagnostic category (i.e., DRG). Each DRG has its own 

length of stay and, not surprisingly, patients in those DRGs have different lengths 

of stay resulting in an average length of stay for all patients. For example, the average length of stay for the most common LTCH patient, those dependent on mechanical ventilators for breathing, is about 34 days. The threshold for defining these patients as ‘‘short stay’’ is 5/6ths of the mean, or 28.5 days. So an LTCH could successfully wean a patient from the ventilator in 26 days, send the patient home, and that 

patient would be defined as a ‘‘short stay outlier.’’ Likewise, weaning attempts could 

fail and the patient, with family support, could decide to terminate life support before reaching the average length of stay. The average length of stay for all ‘‘short 

stay’’ patients is just under 13 days, almost 3 times as long as the 5-day average 

length of stay for all patients in a short-term acute care hospital. 

CMS now proposes to pay for these ‘‘short stay’’ outlier patients at rates that are 

equivalent to what short-term community hospitals are paid for patients in the 

same diagnostic categories. CMS assumes—wrongly— that the patients in these two 

settings are clinically similar and therefore require the same level of resources and 

cost the same to treat. In fact, CMS’s own data, which it failed to consider in formulating the policy, shows the opposite—LTCH patients in the same diagnostic categories are much sicker and have much longer lengths of stay than patients in 

short-term acute care hospitals. This is true even for so-called ‘‘short stay outlier’’ 

patients in LTCHs. In fact, short stay outlier patients in LTCHs are really no different from other LTCH patients in terms of how sick they are, their risk of mortality and their major diagnostic categories. 

The following graph shows the percentage of patients that are classified in the 

highest severity of illness categories for all LTCH patients, ‘‘short stay’’ LTCH patients, and short-term acute care hospital patients. I want to re-emphasize that 

these data come from CMS’s own database—MedPAR—and CMS could have done 

the same analysis to evaluate the appropriateness of its proposed policy. The graph 

shows that LTCH patients are much sicker than equivalent short-term acute care 

hospital patients in the same diagnostic categories. Even ‘‘short-stay’’ outlier LTCH 

patients are sicker—in fact, nearly twice as many short stay LTCH patients are in 

the highest severity of illness categories. Equally important, shorter stay LTCH patients are really no different than other LTCH patients in terms of how severely 

ill they are. 


image002a.eps
32 

Likewise, LTCH patients—even so-called ‘‘short stay’’ patients—have much longer 

lengths of stay than do equivalent short-term acute care hospital patients. Table 

One shows that, on average, LTCH patients have a length of stay of about 27 days, 

‘‘short stay’’ patients have a length of stay just under 13 days, and Short-Term 

Acute Care Hospital patients have lengths of stay of just over 5 days. 

TABLE 1 LTCH 

DRG Description 

LTCH 

Short 

Stay 

Average 

Length 

of Stay 

ShortTerm 

Hospital 

Length 

of Stay 

475 RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR SUPPORT 13.0 8.0 

87 PULMONARY EDEMA & RESPIRATORY FAILURE 13.0 4.9 

88 CHRONIC OBSTRUCTIVE PULMONARY DISEASE 9.8 4.1 

271 SKIN ULCERS 13.0 5.5 

89 SIMPLE PNEUMONIA & PLEURISY AGE >17 W CC 10.1 4.8 

All DRGs (weighted by case frequency) 12.7 5.6 

The combined effects of higher severity of illness and longer lengths of stay explains why CMS’s policy is flawed and results in such significant payment shortfalls. Simply put, patients who are, on average, more severely ill and have longer 

lengths of stay are more costly to care for. Prospective payment systems produce 

rates based on these averages. Use of a prospective payment system for short term 

hospitals, based on one set of averages, will never produce rates that are adequate 

for the LTCH prospective payment system, which is based on another set of averages. 

Consider the example I mentioned above regarding patients dependent on ventilators. The payment rate for LTCHs for a ventilator dependent patient assumes that 

the patient will stay in the LTCH 34 days, on average. Even ‘‘short stay’’ patients 

stay, on average, 13 days. Under CMS’s proposed rule the LTCH would receive the 

short term hospital payment rate for all patients who stay less than 28 days—the 

threshold for defining ‘‘short stay’’—when the average ventilator dependent patient 

in the short term acute care hospital stays only 8 days. The perverse effect of CMS’s 

policy is to penalize LTCHs who admit and treat the most medically complex patients who happen to be defined as ‘‘short stay’’ under CMS’s own rules. 

HHS had it right in 1982 when it told this Subcommittee that paying LTCHs (and 

other exempt hospitals) under a short-term hospital DRG system would be inappropriate because the system ‘‘was not designed to account for [the] types of treatment’’ 

found in these hospitals and therefore ‘‘would be inaccurate and unfair’’ (August 31, 

2002 Federal Register, Vol. 67, No. 169, p. 55957). Congress had it right in 1983 

when it exempted LTCHs because ‘‘the DRG system was developed for short-term 

acute care hospitals and as currently constructed does not adequately take into account special circumstances of diagnoses requiring longer stays.’’ Report of the Committee on Ways and Means, U.S. House of Representatives, to Accompany HR 1900, 

H.R. Rept. No. 98–25, at 141 (1983). And CMS had it right in 2002 when it first 

developed the LTCH-specific DRG system at Congress’ direction and stated that the 

short-term hospital system could ‘‘systematically underpay’’ LTCHs ‘‘if the same 

DRG system were applied to them.’’ (August 31, 2002 Federal Register). 

Without any data analysis, CMS justifies its proposed policy by making a number 

of assumptions, each of which is without substance. First, CMS asserts that LTCH 

patients who stay shorter than the average did not complete their course of care 

in the short-term acute care hospital and have been discharged too early. Yet, 

CMS’s own data shows that patients discharged to an LTCH had prior lengths of 

stay in a short-term acute care hospital of over 13 days, nearly 3 times the average 

length of stay of just over 5 days for all other patients. So there is no evidence that 

short-term hospitals are discharging medically complex patients to LTCHs earlier 

than is clinically appropriate. 

CMS next assumes that LTCHs can predict—in advance—how long patients will 

stay and what the clinical outcome of their care will be. This assumption is particularly troubling because it is very difficult to predict length of stay or clinical outcome with the medically complex patient population that LTCHs typically treat. As 

I noted above, shorter stay LTCH patients are no different than the average LTCH 

patient in terms of severity of illness, making it even more difficult for LTCH physicians to distinguish between patients whose length of stay may be shorter than average. I would also note that a certain percentage of these medically complex patients expire during their LTCH stay, some shortly after admission. Here again, 

33 

LTCH physicians cannot predict in advance with any accuracy whether or when patients may expire. In fact, the ‘‘risk of mortality’’ for short stay patients is virtually 

identical to the average LTCH patient. 

Finally, CMS asserts that because 37% of LTCH cases are defined as ‘‘short stay’’ 

outliers, then LTCHs somehow must be engaged in admission practices that are inappropriate. But the percentage of short stay cases is determined by CMS’s own 

rules and it is not surprising that about half of all patients have lengths of stay 

below the mean of all patients—it’s simply proving the law of averages. When the 

same definition is applied to short-term acute care hospitals, over 40% of cases are 

likewise defined as ‘‘short stay,’’ a statistic that is understandable given the definitions used by CMS. And even assuming LTCHs could predict length of stay or clinical outcome in advance, there is a built-in disincentive against LTCHs admitting 

patients whose length of stay might be short. If they routinely admit short stay patients, LTCHs risk losing LTCH certification status because they will no longer be 

able to meet the 25-day length of stay threshold for qualifying as an LTCH. 

Conclusion and Recommendations 

As I noted at the outset, this Subcommittee and MedPAC have raised legitimate 

issues regarding the proper role of LTCHs in the health care continuum, appropriate patient placement and recent LTCH growth. Kindred, in partnership with 

other ALTHA members, have developed specific policy alternatives designed to define an appropriate role for LTCHs. An inevitable byproduct of this work will be to 

ensure appropriate patient placement and limit growth. Specifically, we fundamentally agree with MedPAC’s recommendation and this Subcommittee’s endorsement 

that LTCH certification criteria should be refined to ensure that medically complex, 

severely ill patients are admitted to LTCHs. We have provided MedPAC and this 

Subcommittee the details of this proposal. We also provided a copy to CMS months 

ago, but have yet to receive any kind of response. Certification criteria, not draconian payment cuts, are the appropriate policy response to the LTCH policy issues 

we’ve been discussing today. 

We also recommended to CMS in our comments a variety of non-payment approaches to address the policy issues they perceive to exist with shorter stay patients. For example, pre-admission physician certification of the need for LTCH 

services, coupled with post-hoc reviews of medical necessity as called for by 

MedPAC, would address the concerns raised by CMS. Similarly, ALTHA has longencouraged CMS, as has MedPAC, to adopt uniform admission screening criteria to 

ensure the appropriateness of LTCH admissions. Many LTCH providers and Quality 

Improvement Organizations (QIOs) use such screening tools, but CMS has yet to 

standardize their use. 

Finally, in our comment letter we have also encouraged CMS to adopt a more targeted approach to addressing its concerns about shorter stay patients, rather than 


fig003a.eps
34 

resorting to across the board dramatic payment cuts. While we generally oppose use 

of the payment system to address the issues raised, CMS could easily target payment reform to ‘‘very short stay’’ patients and avoid the damage caused by the proposed rule. 

I would be remiss if I did not close today by sharing with the Subcommittee the 

importance of what LTCHs do in terms of quality outcomes. Perhaps most disappointing about CMS’s proposed rule is the lack of any discussion about quality 

or any analysis about the impact of the payment reforms on access or quality. Kindred is very proud of the quality outcomes we have been able to achieve over the 

last several years in key areas of importance to the medically complex patients we 

treat. These outcomes were not achieved by chance—our strategic quality plan has 

systematically improved outcomes in key clinical areas such as ventilator associated 

pneumonia rates, blood stream infection rates, customer satisfaction, and ventilator 

weaning ratios. 

* Internal Kindred Data, Rates Per 1,000 Patient Days 

Based on available data, our clinical outcomes exceed those in other settings. 

Kindred Complication Rates are Less than Other Health Care Settings* 

* National Nosocomial Infection Surveillance (NNIS) (2003) 

Internal Kindred Data, Rates Per 1,000 Patient Days 

Just this last Sunday the New York Times reported a critical shortage of available 

ventilators should the bird flu pandemic reach the United States. LTCHs are a vital 

part of our nation’s already fragile infrastructure for complex respiratory care. 

CMS’s proposed rule would deal a significant blow to this infrastructure. We look 

forward to working with the Subcommittee, MedPAC, CMS and others to implement 

policy reforms for LTCHs and other post-acute providers that balance fiscal responsibility with access to critical care. 


fig004.eps fig005a.eps
35 

Thank you again for the opportunity to testify and I would be happy to answer 

any questions you have. 

f 

Chairman JOHNSON. Thank you. Ms. Moore? 

STATEMENT OF LAURA N. MOORE, VICE PRESIDENT, STRATEGY AND OPERATIONS, MASSPRO, WALTHAM, MASSACHUSETTS 

Ms. MOORE. Chairwoman Johnson, Congressman McCrery, and 

Congressman Pomeroy, I would first like to thank you for allowing 

me to address you today. My name is Laura Moore, and I am the 

Vice President of Strategy and Operations for MassPRO, the quality improvement organization, also known as the QIO, for Massachusetts. I am here today to provide some information related to 

the use of patient criteria for long-term hospital patients. My discussion will center on screening criteria to evaluate whether beneficiaries being treated in the long-term care hospitals specifically 

need the level of care that these hospitals provide. As a representative of the QIO community, my role and the basis of expertise that 

I can provide to this Committee is related to the patient-centered 

and evidence-based assessment that we practice in our case review 

efforts, rather than the financial aspects of the process, since QIOs 

are quality/performance improvement, not payment, organizations. 

As a QIO, MassPRO has significant experience with assessing 

the importance of employing the right criteria to ensure the appropriateness of both the admission and the continued stay. More particular to our testimony today, our nurse reviewers perform case 

review under contracts with the Centers for Medicare and Medicaid 

Services—CMS—one of the statutory requirements for federally 

designated QIOs, as well as our State Office of Medicaid. 

In addition to the case review role, MassPRO has significant experience with long-term care hospitals because of several targeted 

projects we have worked on. For example, MassPRO was contracted by CMS to develop the written manual of policies and procedures that the QIOs use to ensure consistency and standardization in the review process. In addition, CMS used MassPRO’s technical expertise in this arena to train other QIOs on several fronts, 

including: what the overall environment in the long-term care hospital setting encompasses; how to conduct outreach and educate 

long-term care hospitals on the QIO case review process; and how 

to explain the expectations within the—and at the time that we 

were doing this the new—prospective payment system, PPS, to 

long-term care hospital providers. 

By introducing this new program with consistent materials, CMS 

promoted consistent and standard review practices. The only aspect 

of the program that was—and still is today—not standardized is 

the use of screening criteria. As with criteria for all case reviews, 

CMS neither requires not promotes the use of a single set. 

In addition, MassPRO is currently working with the National Association of Long Term Care Hospitals, NALTH, in its effort to 

modernize patient-level screening criteria for the long-term care 

hospital industry. We are assessing NALTH’s five sets of screening 

criteria to ensure that severity of illness and intensity of treatment 

36 

are appropriate and valid. Although the effort is still in process, 

our assessment so far is that these criteria are on the right track. 

They address the complex medical conditions of long-term care hospital patients, and we believe that providing a standard, consistent 

measurement tool will not only improve quality of care but also 

help protect the Medicare trust fund by reducing inappropriate admissions. 

An example of our experience with long-term care hospital providers in Massachusetts is as follows: since August 2005, MassPRO 

has reviewed 75 long-term care hospital cases, including 12 each 

from two different facilities and 11 cases involving respiratory 

DRGs. Our review process enables case reviewers to begin to see 

patterns of practice and perhaps trends, even in the relatively 

small number referenced above. When a patient is discharged in 

fewer days than the SSO threshold, it will be for one of three reasons, other than the death of the patient: one, the expertise of the 

hospital, therefore, the patient improves and gets better; circumvention of the rules by the providers, for example, multiple 

transfers; or, three, the reality that the patient should not have 

been admitted to the hospital in the first place. 

In its report to Congress in June 2004, MedPAC reported, ‘‘In 

general beneficiaries treated in long-term care hospitals cost Medicare more than patients treated in alternative settings; however, if 

long-term care hospital care is better targeted to those patients 

who appear to be most suitable for long-term care hospital care, the 

costs to Medicare are more comparable.’’ MedPAC, therefore, recommended ‘‘patient-level criteria should identify specific clinical 

characteristics and treatment modalities.’’ 

We believe and are in agreement with the MedPAC report that 

many problems with PPS for long-term care hospitals can be reduced through efforts to develop screening criteria that will improve the appropriateness of admissions and continued stay. 

By having a standard criteria set, long-term care hospitals will 

reduce the number of inappropriate admissions. In its June 2003 

report, MedPAC asserted, and MassPRO agrees, that ‘‘if care shifts 

among settings, it should occur for clinical reasons and not because 

of different payment rates or the profitability of specific settings of 

care.’’ By having specific criteria in place, only those patients who 

should be admitted to long-term care hospital will be. 

Thank you again for letting me talk with you today, and I would 

be happy to answer any questions. 

[The prepared statement of Ms. Moore follows:] 

Statement of Laura N. Moore, Vice President, Strategy and Operations, 

MassPRO, Waltham, MA 

Chairwoman Johnson, Ranking member Stark and the members of the Subcommittee, I would like to thank you for allowing me to address your committee 

today. My name is Laura Moore, and I am Vice President of Strategy and Operations at MassPRO, the Quality Improvement Organization (QIO) for the Commonwealth of Massachusetts. I am here today to provide some information related to 

the use of patient level criteria for Long Term Care Hospital (LTCH) patients. My 

discussion will center on screening criteria to evaluate whether beneficiaries being 

treated in LTCHs specifically need the level of care that these hospitals provide. As 

a representative of the QIO community, my role and the basis of expertise that I 

can provide to this committee is related to the patient-centered and evidence-based 

assessment we practice in our case review efforts, rather than the financial aspects 

37 

of the process, since QIOs are quality/performance improvement, not payment, organizations. 

As a QIO, MassPRO has significant experience with assessing the importance of 

employing the right criteria to ensure the appropriateness of both the admission and 

the continued stay. More particular to our testimony today, our nurse reviewers perform case review under contracts with the Centers for Medicare and Medicaid Services (CMS), one of the statutory requirements for federally designated QIOs, as well 

as our state Office of Medicaid. 

In addition to the case review role, MassPRO has significant experience with 

LTCHs because of several targeted projects. For example, MassPRO was contracted 

by CMS to develop the written manual of policies and procedures that the QIOs use 

to ensure consistency and standardization in the review process. In addition, CMS 

used MassPRO’s technical expertise in this arena to train other QIOs on several 

fronts including: what the overall environment in the LTCH setting encompasses; 

how to conduct outreach and educate LTCHs on the QIO case review process; and 

how to explain the expectations within the (then new) Prospective Payment System 

(PPS) to LTCH providers. PPS was established in regulation in 2002, training and 

outreach to providers occurred in 2003 and the new QIO review process was instituted as directed by CMS in January 2004. 

By introducing this new program with consistent materials, CMS promoted consistent and standard review practices. The only aspect of the program that was (and 

is) not standardized is the use of screening criteria. As with criteria for all case review, CMS neither requires nor promotes the use of a single set. 

In addition, MassPRO is currently working with the National Association of Long 

Term Care Hospitals (NALTH) in its effort to modernize patient-level screening criteria for the LTCH industry. We are assessing NALTH’s five sets of screening criteria to ensure that severity of illness and intensity of treatment are appropriate 

and valid. Although the effort is still in process, our assessment so far is that these 

criteria are on the right track—they address the complex medical conditions of longterm care hospital patients, and we believe that providing a standard, consistent 

measurement tool will not only improve quality of care but also help protect the 

Medicare Trust Fund by reducing inappropriate admissions. 

An example of our experience with LTCH providers in Massachusetts is as follows: that since August 2005, MassPRO has reviewed 75 LTCH cases, including 12 

each from 2 different facilities and 11 cases involving respiratory DRGs. Our review 

process enables case reviewers to begin to see patterns of practice and perhaps 

trends, even in the relatively small number referenced above. When a patient is discharged in fewer days than the SSO threshold, it will be for one of three reasons 

(other than the death of the patient): (1) due to the expertise of the hospital, the 

patient improves and gets better, (2) circumvention of the rules by the providers 

(e.g. multiple transfers), or (3) the reality that the patient should not have been admitted to the hospital in the first place. 

In its report to Congress in June 2004, MedPAC reported, ‘‘In general, beneficiaries treated in long-term care hospitals cost Medicare more than patients treated in alternative settings; however, if LTCH care is better targeted to those patients 

who appear to be most suitable for LTCH care, the costs to Medicare are more comparable.’’ MedPAC therefore recommended, ‘‘patient-level criteria should identify specific clinical characteristics and treatment modalities.’’ 

We believe, and are in agreement with the MedPAC report, that many problems 

with PPS for LTCHs can be reduced through the use of standardized screening criteria that will improve the appropriateness of admissions and continued stay. 

By having a standard criteria set, LTCHs will reduce the number of inappropriate 

admissions. In its June 2003 report, MedPAC asserted, and MassPRO agrees, that 

‘‘if care shifts among settings, it should occur for clinical reasons and not because 

of different payment rates or the profitability of specific settings of care.’’ By having 

specific criteria in place, only those patients who should be admitted to LTCHs will 

be. 

MedPAC also recommended that QIOs, given the requisite additional funding, 

could review LTCHs for medial necessity and monitor that these facilities are in 

compliance with defining criteria. By implementing both of these recommendations, 

costs will be reduced and patient care improved by providing the necessary tools for 

LTCHs to select appropriate patients and for QIOs to ensure that they do. 

Thank you. 

Background Information 

Case Review Process 

The case review process may need some explanation. On a monthly basis, CMS 

assigns a random sample of LTCH cases for full case review. CMS uses an average 

38 

of 1,400 per year (116 per month). In January 2006, this review was incorporated 

under the Hospital Payment Monitoring Program (HPMP), whose purpose is to 

measure, monitor, and reduce the incidence of improper fee-for-service inpatient 

payments, including errors in DRG coding; provision of medically necessary services; 

and appropriateness of setting, billing, and prepayment denials. The long-term goal 

of HPMP is to help inpatient prospective payment system hospitals monitor payment patterns by analyzing data, conducting focused audits, and implementing system changes to prevent payment errors. 

Once the file is selected, the process begins with a request of the medical record. 

When the record is received, the nurse reviewer (called a review case manager, or 

RCM) uses screening criteria appropriate to the admission to determine whether or 

not the 

• services or items provided to a patient were medically necessary, reasonable 

and provided in an appropriate care setting (Utilization Review), • quality of the services/items was adequate (Quality Review), and/or • hospital and patient record accurately reflects the services/items provided and 

billed (Diagnosis Related Groups (DRG) Validation Review). 

If the case ‘‘passes’’ screening criteria, the paperwork is finalized and the case is 

closed. 

If the RCM identifies any concerns, he/she refers the case to the physician reviewer (PR). Regulations specify the type of reviewer to ensure the applicability of 

peer review. The PR uses his/her medical experience and judgment to render a decision. PRs do not use screening criteria in rendering their decisions. The PR may 

resolve the concerns of the RCM, in which case the paperwork is finalized and the 

case closed. If, instead, he/she agrees with the concerns identified by the RCM, or 

identifies additional concerns, the provider is given an opportunity to discuss the 

concerns before a final determination is made. If appropriate, the QIO notifies the 

Fiscal Intermediary it should adjust the payment to the facility. In 2004, $2.2M in 

net dollars were identified through QIO review as having been made in error. 

The QIO’s RCM uses the screening criteria selected by that QIO. CMS does not 

require nor even promote the use of any specific screening criteria (although, for 

short-term acute care hospitals, QIOs have use of InterQual criteria as a passthrough cost in their contract). MassPRO strongly supports NALTH’s development 

of standard screening criteria for LTCHs. 

f 

Chairman JOHNSON. You have to pull the microphone a little 

closer. Thank you. 

STATEMENT OF JOHN VOTTO, D.O., PRESIDENT AND CHIEF EXECUTIVE OFFICER, HOSPITAL FOR SPECIAL CARE, NEW 

BRITAIN, CONNECTICUT 

Dr. VOTTO. Thank you for inviting me here today to speak. My 

name is John Votto. I am a pulmonary physician. I practice at the 

Hospital for Special—— 

Chairman JOHNSON. Can you pull it closer to you? Try that. 

Dr. VOTTO. Can you hear me now? 

Chairman JOHNSON. Not very well. 

[Pause.] 

Dr. VOTTO. My name is John Votto. I am a pulmonary physician. I practice at the Hospital for Special Care in New Britain, 

Connecticut, and at the VA Hospital in Connecticut. I am President 

of the Hospital for Special Care. I am on the Board of Directors of 

the National Association of Long Term Hospitals, which I will refer 

to as NALTH throughout this testimony. I also chair the Physician 

Committee and the Criteria Development Committee, which you 

just heard about. The hospitals in NALTH organization care for approximately a third of all Medicare beneficiaries who receive care 

at long-term hospitals. My hospital, the Hospital for Special Care, 

39 

is a 228-bed long-term acute care hospitals, with a special emphasis on ventilator and wound programs, and we do act as a safety 

valve hospital for the State of Connecticut. 

I will refer frequently throughout this testimony to the analysis 

of the proposed rule done by the Lewin Group at the request of 

NALTH. I know that you have heard a lot of numbers, but there 

are a few more important numbers. According to this report, 66 

percent of all short-stay outliers and 28 percent of all admissions 

would be paid under the acute inpatient prospective payment system rate. This policy would obviously have a negative financial and 

patient care effect. CMS estimated 11.3 percent reduction in revenues, and at my hospital that would represent about $1.1 million. 

What is clear is that CMS sees all short-stay outlier cases as patients who should not be admitted to LTCHs but are instead premature discharges from acute care hospitals. 

The payment penalty is formidable, as you have heard. Payments for short-stay outliers fall from an average of $14,500 to approximately $8,000 overall. LTCH margins for treating these cases will 

be 81 percent less than cost from what we hear. As Mrs. Johnson 

said, many of the LTCHs will have negative margins on the average of 5 percent. Additionally, a perverse consequence of the shortstay outlier policy is that so much money would be taken out of the 

long-term care payment system that more costly patients, those 

that are high-cost outliers, this threshold would be increased from 

$10,500 to $18,500. Therefore, a long-term hospital would be penalized for patients that are defined as short stay and patients that 

are long stay. These patients, as Mr. Altman mentioned, are more 

severely ill. According to Lewin’s data, the case mix index for shortstay outliers in LTCHs is approximately 2.05, while the case mix 

index for the same DRG in acute care hospitals is 0.9, a 109-percent difference. The length of stay, according to Lewin, is 71 percent longer for the long-stay patients. 

The proposed rule contains an explicit instruction which may 

preclude admission of very ill patients requiring a long stay. At my 

hospital we admit long-stay or very ill patients who have a very 

limited number of Medicare days left. If they have days left less 

than the five-sixths of the geometric mean, and even if they stayed 

for a very long time, they would be considered short-stay outliers 

and would be paid as a short-stay outlier, which would substantially under pay for this necessary care. 

The major problem of the policy, as it has been stated, is that 

it destroys the fundamental premise of every prospective payment 

system, which is that the losses from the high-cost cases will be offset by the shorter-term low-cost cases. In other words, the proposal 

destroys the principle of averaging. We have heard about the 37 

percent of cases being too short. We have heard the issue of the 

arithmetic, and the five-sixths does define, as Lewin states in their 

report, will always identify 35 to 40 percent of the patients, and 

thus, 37 percent is inevitable. 

There are clear benefits to the patients cared for in LTCHs. 

MedPAC’s 2004 report found that patients treated in LTCHs were 

readmitted to an acute care hospital 26 percent less often than 

those to other settings. In Nalth’s ventilator outcome study, looking 

at 1,419 patients discharged from acute care hospitals, after failing 

40 

multiple weaning attempts—and they were defined to have to have 

failed multiple weaning attempts—over 400 had stays of less than 

29 days, thus qualified as short-stay outliers. Ninety-four percent 

of these patients came directly from ICUs and despite advanced 

age, multiple complications, and multiple co-morbidities, 54 percent 

of these patients were weaned from the ventilator, and 75 percent 

of these patients survived to discharge. 

NALTH has developed LTCH-specific criteria, as you have heard. 

I did lead that Committee, and we did spend a solid 2 years, and 

I am now on the 31st draft of the admission criteria. I believe that 

we are in the final-final-final draft of these criteria, and I believe 

that these criteria clearly constitute a more patient-centered approach to identify patients who qualify for admission to LTCHs. 

These criteria will very shortly be ready for implementation by the 

appropriate Medicare review organizations. 

I also wish to note, in the March 2006 report to Congress, 

MedPAC reported a 29-percent denial rate when they reviewed a 

small, 1,400-case sample of LTCH cases. A 29-percent denial rate 

is a huge number of cases, and I would suggest that these criteria 

might lower that rate of denials. 

I would also like to comment just shortly on the 25-percent rule 

because when it is phased in, it will be another example of a payment system driving admissions instead of good clinical evaluation. 

When this rule is in effect and under the scenario of this rule, any 

patient above the 25-percent threshold will be paid at the IPPS 

rate, whether they are a short-stay outlier or a high-cost outlier, 

if they are in a collocated hospital. This is another financially driven disincentive to admit clinically appropriate patients. 

If the Committee would indulge me, I just would like to comment 

on the LTCH satellite that we developed in the State of Connecticut. The State of Connecticut came to us and said that they 

were having problems with back-up in the intensive care units 

throughout the State. They asked us if we could increase our number of bed as we are usually full. We researched the possibility of 

adding 25 beds to our main campus; however, the cost was untenable at $25 million. 

The Office of Health Care Access then authorized a demonstration project allowing an LTCH satellite to be established in an 

acute care hospital. We then partnered with the acute care hospital 

in the State of Connecticut that happens to be the busiest cardiac 

surgery hospital in New England, for obvious reasons, because we 

thought that would be the most likely patients. 

They identified a unit that they were not using, and at the cost of $2.1 million we together developed a 28-bed unit in an acute 

care hospital. We opened this hospital or this unit in September of 

2004, and under the present 25-percent rule, we would have to 

begin dismantling it in September of 2006. 

Thank you for your attention, and I will be happy to take questions. 

[The prepared statement of Dr. Votto follows:] 

Statement of John Votto, President and Chief Executive Officer, Hospital 

for Special Care, New Britain, CT 

Chairman Johnson and members of the Subcommittee, thank you for inviting me 

to speak before you today on the important issues which are the focus of this hearVerDate Aug 31 2005 05:49 Dec 23, 2006 Jkt 030439 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 E:\HR\OC\30439.XXX 30439
41 

ing: CMS’ proposed changes to the payment system for long-term care hospitals and, 

more specifically, the proposed rules regarding short-stay outliers, the 25% rule and 

the 0% update. My name is John Votto. I am a physician with a specialty in pulmonary medicine. For the past eighteen years, I have practiced medicine at the Hospital for Special Care in New Britain, Connecticut. Currently, I am the President 

of the Hospital for Special Care and also maintain an active practice caring for patients at the Hospital. Additionally, I care for pulmonary patients at the Veterans 

Hospital located in Newington, Connecticut. I am a Director of the National Association of Long Term Hospitals and serve as the Chairman of the Association’s Physician Committee, as well as its Committee on Criteria Development. The hospitals 

which constitute the National Association of Long Term Hospitals account for approximately one-third of all Medicare beneficiaries who receive services in long-term 

care hospitals. While many of my remarks today are made on behalf of the National 

Association of Long Term Hospitals, they also relate to the Hospital for Special 

Care. The Hospital for Special Care is a relatively large, long-term care hospital 

with 228 beds and an active outpatient department. The hospital provides a wide 

range of clinical services, including ventilator weaning services, to patients who 

have complex medical care needs. The hospital provides rehabilitation services and 

maintains the only certified spinal cord injury unit in the State of Connecticut. The 

Hospital for Special Care also operates a freestanding, 282-bed skilled nursing facility. Accordingly, I am keenly aware of the issues related to the appropriateness of 

services provided to inpatients in the long-term care hospital setting as compared 

to other settings. 

At several points during my testimony, I will refer to an extensive analysis of 

CMS’ January 27, 2006 proposed rule which the National Association of Long Term 

Hospitals asked The Lewin Group to prepare. This report is entitled ‘‘Final Report: 

Analysis of Long Term Care Hospitals RY 2007 Prospective Payment System Notice 

of Proposed Rulemaking’’ and has been made available, in its entirety, to the Committee’s professional staff. 

The focus of this hearing is to explore issues related to CMS’ proposed changes 

to the payment system for long-term care hospitals. The proposal of these rules, in 

and of itself, has created an emergency situation for long-term care hospitals which, 

if not abated, will affect Medicare beneficiaries’ access to patient care at the Hospital for Special Care and other long-term care hospitals throughout the nation in 

the next month or two, prior to the rule’s July 1, 2006 proposed effective date. The 

situation I am referring to is created by the proposal of changes to the current 

short-stay outlier payment policy. 

Effect of Proposed Rule 

Currently, short-stay outliers are paid the lower of 120% of patient costs, 120% 

of the per diem of the LTCH–DRG or the full LTCH–DRG payment. CMS proposes 

to change this to the lower of 100% of patient costs, 120% of the per diem of the 

LTCH–DRG, the full LTCH–DRG or an amount comparable to what would be paid 

under the acute inpatient hospital prospective payment system. According to the 

Lewin Report, 77% of all short-stay outlier cases, and 28% of all cases, would be 

paid at acute inpatient hospital prospective payment system rates under the proposed rule. CMS’ proposed short-stay outlier policy will have a negative impact on 

both patient care and the financial viability of long-term care hospitals. CMS estimates that the effect of this policy will be an 11.3% reduction in reimbursement. When combined with the estimated 3.6% reduction resulting from CMS’ proposed 0% update, the aggregate reduction of about 15% would, for example, cost the 

Hospital for Special Care $1,100,000 out of approximately $11,500,000 in annual 

Medicare revenues. 

It is clear that CMS views all short-stay outlier cases as patients who should not 

be admitted to long-term care hospitals. This is seen in the straightforward assertion, contained in the preamble to the proposed rule, that short-stay outlier cases 

‘‘may be inappropriate admissions of patients who are prematurely discharged from 

acute care hospitals.’’ 71 Fed. Reg. 4688. The preamble to the rule also explicitly 

states that the objective of the short-stay outlier proposal is to ‘‘discourage LTCHs 

from admitting patients that could be premature discharges from acute care hospitals.’’ 71 Fed. Reg. 4687. CMS assumes patients identified as short-stay outlier 

cases in long-term care hospitals have lengths of stay more typical of an acute care 

hospital and that the long-term care hospitals which admit these patients may be 

behaving like acute care hospitals. 71 Fed. Reg. 4687. 

CMS clearly and admittedly is proposing the new short-stay outlier policy as a 

way, effectively, to preclude Medicare beneficiaries who would become short-stay 

outlier patients from being admitted to long-term care hospitals. The payment penalty which is proposed as a deterrent for admission of the beneficiaries is indeed 

42 

formidable. According to the Lewin Group, the following financial consequences 

would accrue as a result of the short-stay outlier policies. 

• Payments for short-stay outliers would fall from $14,582 per case in 2006 to 

$8,042 per case in 2007. • Long-term care hospitals’ margins for treating short-stay outlier cases would be 

a negative 81.2%. That is, hospitals would be paid 81.2% less than costs for 

treating a short-stay outlier patient. 

• On a national basis, 68.6% of all long-term care hospitals would have negative 

margins of, on average, negative 4.93%. Not-for-profit hospitals’ negative margins would be double the national average, at negative 8.80%. 

• The rural areas and the south would have the worst negative margins. 

Additionally, a perverse consequence of the short-stay outlier policy is that so 

much money would be taken out of the long-term care hospital payment that the 

cost threshold for treating longer-term, cost-outlier patients (those whose costs exceed 80% of full LTCH–DRG payments) would be increased from $10,501 to $18,489. 

Long-term care hospitals, therefore, would be penalized for patients CMS defines as 

short-stay patients and as high-cost (long-stay) patients. 

The underlying policy premises for the short-stay outlier proposal also are clearly 

erroneous. Moreover these erroneous assumptions, as a real matter, drain all validity from the long-term care hospital prospective payment system. 

Short-stay outlier cases in long-term care hospitals are not comparable, in terms 

of length of stay or medical resource use, to patients assigned to the same diagnosisrelated groups in acute hospitals. In fact, the patients CMS identifies as short-stay 

outlier cases in long-term care hospitals would be extraordinary long-stay, costly 

cases in acute hospitals. 

Using the 2004 MedPAR data which CMS used for its impact file in the proposed 

rule, the Lewin Group determined that the weighted average length of stay 

(‘‘ALOS’’) for short-stay outlier cases admitted to long-term care hospitals is 12.7 

days, which is 72% longer than the ALOS of patients assigned to the same diagnosis-related groups (‘‘DRGs’’) in acute hospitals. The point is made best by comparing the ALOS of patients in long-term care hospitals with the ALOS of patients 

in acute hospitals, for the top three DRGs, as illustrated in the following chart. 

DRG DRG Name SSO ALOS 

Acute Care 

Hospital 

ALOS 

475 Respiratory System DX with Ventilator Support 28.8 14.5 

87 Pulmonary Edema & Respiratory Failure 21.2 11.7 

271 Skin Ulcers 23.1 13.1 

According to the Lewin Group, only 14% of the short-stay outlier cases in longterm care hospitals have a length of stay which is below the geometric mean length 

of stay of patients assigned the same DRG in the acute hospitals. It is beyond dispute that short-stay outlier cases in long-term care hospitals would be very longstay, high-cost cases in acute hospitals. I have appended, as Attachment A to my 

testimony, all of the average case comparative length of stay data for DRGs which 

are in common in both long-term care hospitals and acute hospitals. An ironic consequence of the short-stay outlier policy is that it would penalize the Hospital for 

Special Care when it admits very ill patients who have a long length of stay and 

exhaust their Medicare day benefit prior to reaching 5/6 of the average length of 

stay for their DRG. CMS labels these long-stay patients as short-stay patients for 

billing purposes and will drastically underpay the cost of their care. These patients 

are usually medically indigent. The Medicare program should not establish financial 

disincentives for these patients to access care in long-term care hospitals. A payment system neither should be a substitution for a physician’s clinical decision-making nor should it impinge on a beneficiary’s freedom of choice, as secured by Section 

1802 of the Social Security Act. 

Short-stay outlier cases also are different in terms of their use of medical resources and, hence, cost of care, than the acute hospital patients who are assigned 

the same DRGs. The Lewin Group has determined that the case mix index of shortstay outlier cases is 2.0592, which is 109% greater than the 0.9873 case mix index 

of cases assigned to the same DRGs in acute hospitals. The difference in DRG 

weights for all DRGs which are common to long-term care hospitals and acute hospitals are contained in Attachment B to my written statements. 

43 

1Schweiker, R.S., ‘‘Report to Congress: Hospital Prospective Payment for Medicare,’’ Secretary 

of the Department of Health and Human Services, December, 1982. 

Where the average length of stay and case mix of short-stay outlier cases is dramatically different, it is clear that the proposed short-stay outlier policy will not 

make payments which reflect the difference in patient resource use and cost, which 

was required by Congress when it enacted Section 123(a)(1) of the Balanced Budget 

Refinement Act of 1999. Adherence to this statutory standard is fundamental to the 

establishment of a valid prospective payment system. The short-stay outlier policy, 

however, destroys the fundamental premise of every prospective payment system, 

that standard payments allow losses from high-cost cases to be offset by shorterterm, low-cost cases. This fundamental tenet for payment under prospective payment systems was established by HHS Secretary Schweiker in a 1982 report to Congress1 as the base for the then-proposed acute inpatient hospital PPS. The Lewin 

Group has concluded that the proposed short-stay outlier policy destroys the averaging of profit and losses which is essential to a viable PPS because: 

Under the currently proposed rule, averaging is not only taken away—it is reversed. The very cases required to balance the system as averages would be widely 

underpaid ($14,500 in costs vs. $8,000 in payments), and account for about 40 percent of all LPPS cases. To have 40 percent of cases paid at a 81.2 percent margin, 

and the other 60 percent paid to barely cover or paid slightly less than costs, is an 

untenable situation, should CMS intend to ensure the stability of care delivery in 

the LTCH setting.’’ 

CMS states that short-stay outliers currently account for approximately 37% of 

all long-term care hospital patients. CMS is wrong when it states that this percentage reflects ‘‘an inappropriate number of patients being treated in LTCHs who most 

likely do not require the full measure of resources available in [an LTCH].’’ Id. CMS’ 

logic is flawed, as explained by the Lewin report. 

CMS defines an SSO case in such a way that it is essentially impossible for 

LTCHs to admit a smaller percentage of SSOs in any given year. CMS uses a relative measure of ‘‘short stay’’ that guarantees that approximately 30 to 40 percent 

of cases will always be considered ‘‘short.’’ A short stay is defined as a ‘‘stay shorter 

than 5/6 of the geometric mean length of stay.’’ . . . Stays less than 5/6 of the geometric mean will always account for about 30 to 40 percent of cases, regardless of 

the expected-stay threshold the LTCHs require for an admission. . . . To object that 

this is ‘‘too many’’ is like objecting to the fact that LTCHs have 50 percent of cases 

that are below the median. 

If long-term care hospitals were able, somehow, to eliminate all short-stay outlier 

cases, then when CMS engaged in its annual re-weighting of DRGs, it would re-calculate average lengths of stay, including calculation of the 5/6 geometric mean 

lengths of stay of DRGs, thereby identifying new short-stay outliers. In other words, 

cases which were not short-stay outliers last year would be deemed to be short-stay 

outliers next year. 

Not only is the number of short-stay outliers essentially inevitable, CMS also is 

incorrect in its assertion that these patients most likely do not require the full 

measure of resources available in a long-term care hospital. The Lewin Report found 

that long-term care hospital short-stay outlier cases, as compared to acute hospital 

cases within the same diagnosis-related group, have a 70% higher length of stay, 

are about 70% more intense and are more severe. The Lewin Report also found that 

both types of hospitals have a similar percentage of short-stay cases. 

In Chapter 5 of its June 2004 (‘‘New Approaches in Medicare’’) Report to Congress, MedPAC found that ‘‘[p]atients treated in LTCHs tend to have fewer acute 

hospital readmissions—a measure of outcomes—than patients treated in other settings. Patients using LTCHs were readmitted 26 percent less frequently than similar patients in alternative settings.’’ Therefore, proper admission of a patient to a 

long-term care hospital can save the Medicare program the costs of readmission to 

another hospital. 

I can provide you with empirical evidence about the sorts of cases which CMS is 

suggesting long-term care hospitals should not admit. A significant segment of patients admitted to long-term care hospitals are in respiratory failure with ventilator 

support. The National Association of Long Term Hospitals sponsored a study of the 

characteristics of these patients, including ventilator weaning rates, and provided 

CMS and MedPAC with reports and study outcome data. This multi-site study, conducted by the Barlow Respiratory Hospital Research Center, included data on 1,419 

patients who were admitted to 23 long-term care hospitals located throughout the 

country, which had active ventilator weaning programs. Most, if not all of the longterm care hospitals embrace the multidisciplinary, rehabilitative model of care for 

weaning patients from prolonged mechanical ventilation. 

44 

Of all the patients studied, 32% had stays of less than 29 days, which means they 

would qualify as short-stay outliers because they were admitted under DRG 475 

(respiratory system failure with ventilator support), which has a 5/6 geometric mean 

length of stay threshold of 28.8 days. Prior to transfer to the long-term care hospital, 93.9% of patients were in an ICU, with an additional 4.2% transferred from 

‘‘step-down’’ or monitored units. Patients transferred to long-term care hospitals for 

weaning from prolonged mechanical ventilation are elderly with severe acute illness 

superimposed on chronic disease. This population requires extensive continued 

treatments and interventions at the long-term care hospital, not only for respiratory 

failure but for numerous pre-existing conditions, co-morbidities and complications, 

the latter predominantly being infections. In short, these patients were failing at the 

acute hospitals and were admitted to the long-term care hospitals for ventilation 

weaning, which could not be done as successfully at the acute care hospital. Despite 

advanced age and numerous co-morbidities and complications, and despite the fact 

that all of these patients already had failed multiple weaning attempts at the acute 

hospitals, more than 50% of all patients enrolled in the study were weaned successfully from mechanical ventilation at the long-term care hospitals. The rate of survival to discharge was 74.8%, illustrating that long-term care hospitals, with their 

specialized programs of care, safely can wean a population with exceptional medical 

challenges. Nearly 30% of patients returned directly home or to assisted living following discharge from the long-term care hospital. This percentage was not comparable to their status prior to their catastrophic illness. Furthermore, at 12-months 

post-admission to the long-term care hospital, nearly two-thirds of survivors reported good functional status. 

Medicare beneficiaries such as those treated in this study have a right to access 

long-term care hospitals, which would be defeated by the short-stay outlier policy. 

I understand that CMS and the Committee are concerned that the Medicare program makes inappropriate payments where patients who require the same or similar medical resources receive care in different Medicare provider settings at different rates of payment. An appropriate response to this concern was recommended 

by MedPAC in its June 2004 Report to Congress. MedPAC recommended, and the 

National Association of Long Term Hospitals strongly supports, that the Secretary: 

(i) develop facility and patient criteria to ensure patients admitted to long-term care 

hospitals are medically complex and have a good chance of improvement; and, (ii) 

increase medical necessity review of long-term care hospital admissions by Quality 

Improvement Organizations (‘‘QIOs’’), which also can monitor whether hospitals 

comply with the criteria. Implementation of MedPAC’s recommendations would ensure that Medicare beneficiaries receive care in the most appropriate, cost-effective 

and safe setting. CMS’ recent proposed rules effectively ignore MedPAC’s recommendations. Rather than addressing its concerns through a reassessment of the 

proper placement of patients, CMS is proposing drastic changes to the long-term 

care prospective payment system, which both violate the fundamental logic of averaging which underlies prospective payments systems and fail to consider the potential crippling impact on the long-term care hospital sector and the resultant, negative effect on the treatment of Medicare beneficiaries. 

As part of implementation of the long-term care hospital prospective payment system, the Secretary included review responsibilities for the appropriateness of admission to a long-term care hospital for a small sample of 1,400 Medicare cases in the 

QIO scope of work for 2004. The reported denial rate from this review process was 

29%, as reported in MedPAC’s March 2006 Report. The Secretary has retained this 

small sample size for the 2005 QIO scope of work. The denial of a patient admission 

by a QIO means there has been a finding that the patient could have been treated 

in a lower-cost, more appropriate Medicare provider setting, such as at a skilled 

nursing facility or at home with care from a home health agency. In every case 

where there is a final denial by a QIO, the long-term care hospital receives zero 

payment for the case at issue. The National Association of Long Term Hospitals has 

followed closely the review of Medicare cases by QIOs and believes that QIOs effectively and efficiently can distinguish between cases that require the medical resources and programs provided by long-term care hospitals and those provided by, 

for example, skilled nursing facilities. The Secretary properly may consider expanding QIO review responsibilities to include the appropriateness of continued stay and 

discharge. This would result in review for medical necessity and length of stay, the 

two factors which affect payment under the long-term care hospital prospective payment system. 

Similar issues exist with CMS’ proposed changes to the 25% rule. This rule, once 

it becomes fully phased-in, will apply when more than 25% of a long-term care hospital-within-hospital’s or satellite facility’s Medicare inpatient population (excluding 

outlier patients) are admitted from a hospital which is co-located on the same camVerDate Aug 31 2005 05:49 Dec 23, 2006 Jkt 030439 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 E:\HR\OC\30439.XXX 30439
45 

2The National Association of Long Term Hospitals has developed long-term care hospital 

screening criteria, including cardiovascular, complex medical, respiratory, ventilator weaning, 

wound care and rehabilitation criteria sets. The criteria are in the final stage of validation by 

MassPRO and will be ready for use within a month. The Association has shared drafts of these 

criteria with the Subcommittee staff, CMS and MedPAC. 

pus. Payments for the patients who are admitted from the co-located hospital and 

who cause the long-term care hospital-within-hospital or satellite facility to exceed 

the 25% threshold are the lesser of the amount otherwise payable under the longterm care hospital prospective payment system or an amount equivalent to what 

would be paid under the acute inpatient hospital prospective payment system. Payment equivalent to what would be paid under the acute system blatantly ignores 

the different resources used by long-term care hospitals and the statutory requirement, in Section 123 of the Balanced Budget Refinement Act of 1999, that payments 

should reflect differences in patient resource use and cost. 

In the preamble to the proposed rules (at 71 Fed. Reg. 4697), CMS acknowledges 

that it was informed of a study commissioned from the Lewin Group, which found 

that 71.2% of freestanding long-term care hospitals admit more than 25% of their 

patients from a single source acute-care hospital. Therefore, long-term care hospitals-within-hospitals and satellite facilities which do the same are punished merely because of their co-location. 

The State of Connecticut has ICUs which frequently have insufficient bed capacity 

to meet patients’ needs. To address this need, the Hospital for Special Care initially 

decided it would add 25 beds to its facility. This proved to be infeasible because 

building an addition to the hospital would have cost $25,000,000. Therefore, to address the need in a more fiscally responsible way, the State of Connecticut approved 

a demonstration project that allowed the creation of a long-term care hospital within 

an acute hospital. The cost of renovating a floor at St. Francis Hospital, to create 

a 28-bed long-term care hospital-within-hospital, was only $2,000,000. This longterm care hospital-within-hospital currently provides much needed services. However, the proposed changes to the 25% rule, if implemented, would destroy the longterm care hospital-within-hospital, harm the patient population it otherwise would 

serve and strain the capacity of the State of Connecticut’s precious ICU beds. 

CMS’ proposed rule provides for a 0% update in Rate Year 2007. It freezes the 

long-term care hospital prospective payment system standard amount at the RY 

2006 level of $38,086.04. Experts in the LTCH industry estimate that the effect of 

this 0% update policy will be a 3.6% reduction in reimbursement. While most longterm care hospitals could deal with the effect of this proposal if all other aspects 

of the payment system remained unchanged, the cumulative effect of the 0% update 

and the proposed changes to the short-stay outlier policy—an untenable 15% reduction in reimbursement—could mean the destruction of the long-term care hospital 

industry. This is an emergency situation which cannot be ignored. 

Requested Relief 

The proposed rules, if implemented, would come into force on July 1, 2006. The 

proposed short-stay outlier rule would apply to patients admitted to long-term care 

hospitals in the next few months. The National Association of Long Term Hospitals 

and the Hospital for Special Care suggest the following steps be taken by CMS itself 

or under Congressional direction. 

1. The proposed changes to the short-stay outlier policy should be withdrawn immediately because they have a present, adverse effect on beneficiary access to 

patient care. 

2. CMS should halt the phase-in of the 25% rule for long-term care hospitalswithin-hospitals and satellite facilities which currently exist (thereby allowing 

them to admit up to 75% of their patients from co-located hospitals). 

3. CMS should address the issue of appropriate admissions through the use of 

more intensive Quality Improvement Organization review (i.e. to increase the 

small sample which they currently review). 

4. Congress should require CMS to report to Congress on the development of facility and patient criteria for admission to long-term care hospitals by January 

1, 2008 and to advise whether the implementation of such criteria would require Congressional authority. 

5. If such criteria are not implemented by January 1, 2009, CMS automatically 

should implement criteria established by the National Association of Long 

Term Hospitals and validated by MassPRO.2

I wish to thank you and the Committee’s staff again for inviting me here today 

and for your courtesy and your attention to these important questions. 

46 

Attachment A to Testimony of John Votto, D.O. 

Appendix B 

Short Stays and Mean Length of Stays by DRG based on 2004 MedPAR Data 


table1.eps
47 

Short Stays and Mean Length of Stays by DRG based on 2004 MedPAR Data 

(continued) 


table2.eps
48 

Short Stays and Mean Length of Stays by DRG based on 2004 MedPAR Data 

(continued) 


table3.eps
49 

Short Stays and Mean Length of Stays by DRG based on 2004 MedPAR Data 

(continued) 


table4.eps
50 

Short Stays and Mean Length of Stays by DRG based on 2004 MedPAR Data 

(continued) 


table5.eps
51 

Short Stays and Mean Length of Stays by DRG based on 2004 MedPAR Data 

(continued) 


table6.eps
52 

Short Stays and Mean Length of Stays by DRG based on 2004 MedPAR Data 

(continued) 


table7.eps
53 

* The short-stay threshold is 5/6 of the nominal LTH GMLOS 

Source: Lewin Group analysis of the 2004 Medicare Provider 

Analysis and Review (MedPAR) data. The CMS nominal values 

from the IPPS Final Rule for FY 2006. 

Attachment B to Testimony of John Votto, D.O. 

Appendix A 

Comparison of LTCH and ACH DRG Weights by DRG for All 

SSO Cases 

Diagnosis 

Related Group 

(DRG) 

Number 

of LTCH 

Cases 

LTCH 

DRG 

Weight 

Number 

of ACH 

Cases 

LTCH 

DRG 

Weight 

Diff Between 

LTCH and 

ACH DRG 

Weight 

7 113 3.0390 14,782 1.8486 1.1904 

9 58 1.6313 1,724 0.9803 0.6510 

10 66 1.4084 18,551 0.8634 0.5450 

12 1,750 1.2480 52,059 0.6364 0.6116 

13 41 0.9573 7,063 0.5701 0.3872 

14 144 1.3218 235,629 0.8744 0.4474 

15 57 0.9657 92,689 0.6734 0.2923 

16 92 1.2891 9,895 0.8785 0.4105 

18 121 1.1752 29,545 0.6990 0.4762 

19 11 0.9560 8,485 0.4911 0.4649 

20 154 1.7316 6,179 1.8929 (0.1613) 

23 15 1.1852 11,165 0.5737 0.6114 

24 72 1.2414 58,700 0.7014 0.5400 

27 11 1.4511 4,447 0.9317 0.5195 

28 60 1.4822 13,952 0.9304 0.5518 

34 234 1.3440 23,699 0.6916 0.6524 

35 19 0.7638 7,411 0.4428 0.3211 

64 43 1.5637 3,109 0.9113 0.6524 

65 5 0.7358 39,944 0.4010 0.3348 

67 1 3.7672 383 0.5427 3.2245 

68 20 1.2358 11,465 0.4555 0.7804 

73 26 1.4268 7,654 0.5703 0.8565 

75 9 2.6586 43,245 2.1226 0.5360 

76 608 4.7632 44,348 1.9640 2.7992 

78 111 1.3039 39,220 0.8856 0.4184 

79 1,710 1.6891 167,196 1.1133 0.5758 

80 47 0.9747 7,929 0.5853 0.3894 

82 158 1.2138 63,922 0.9560 0.2578 

85 95 1.3759 22,136 0.8299 0.5460 

86 2 0.7097 2,226 0.4783 0.2315 

87 2,163 1.8007 60,498 0.9348 0.8659 

88 2,008 1.2142 398,325 0.6271 0.5871 

89 1,864 1.3499 525,617 0.7244 0.6255 

90 49 0.8806 47,542 0.4276 0.4530 

92 109 1.1902 15,657 0.8374 0.3528 

94 25 1.0823 12,763 0.7895 0.2928 

96 61 1.2468 56,023 0.5205 0.7263 

97 15 0.9493 28,360 0.3840 0.5652 

99 143 1.5350 21,198 0.4901 1.0448 

100 2 0.5292 8,182 0.3643 0.1648 

54 

Comparison of LTCH and ACH DRG Weights by DRG for All 

SSO Cases (continued) 

Diagnosis 

Related Group 

(DRG) 

Number of 

LTCH Cases 

LTCH DRG 

Weight 

Number of 

ACH Cases 

ACH DRG 

Weight 

Diff Between 

LTCH and 

ACH DRG 

Weight 

101 136 1.3668 22,194 0.6030 0.7638 

102 2 1.0346 5,584 0.3793 0.6553 

113 60 3.8085 39,525 2.0303 1.7783 

114 18 2.5241 8,280 1.1460 1.3781 

120 185 2.4948 38,097 1.6150 0.8797 

121 48 1.3892 162,443 1.0968 0.2924 

123 23 1.5470 38,308 1.0915 0.4555 

126 208 1.6560 5,371 1.7552 (0.0991) 

127 1,400 1.2546 667,674 0.7117 0.5430 

130 498 1.3147 88,024 0.6558 0.6589 

131 21 0.9300 26,812 0.3926 0.5374 

132 161 1.2110 141,313 0.4458 0.7652 

133 13 0.8132 8,584 0.3879 0.4253 

134 32 1.0708 40,950 0.4152 0.6556 

135 50 1.0918 7,749 0.6441 0.4478 

138 127 1.0221 206,600 0.5812 0.4409 

139 11 0.6227 86,760 0.3600 0.2627 

141 24 1.0640 108,038 0.5210 0.5430 

142 7 0.6541 52,222 0.4019 0.2522 

144 615 1.2835 94,294 0.8529 0.4306 

145 11 0.6396 7,277 0.4036 0.2359 

148 11 4.3224 133,149 2.3720 1.9504 

151 1 2.6289 5,108 0.9111 1.7177 

170 46 3.4173 15,615 1.9687 1.4486 

171 1 1.9987 1,508 0.8305 1.1682 

172 136 1.5401 31,193 0.9517 0.5884 

173 5 0.9743 2,456 0.5246 0.4497 

174 92 1.2301 249,690 0.6982 0.5320 

175 6 0.4560 34,572 0.3895 0.0665 

176 15 1.3985 13,384 0.7665 0.6320 

179 30 1.5018 13,115 0.7589 0.7429 

180 86 1.4414 89,518 0.6716 0.7698 

182 323 1.4524 270,142 0.5733 0.8791 

183 11 0.7272 90,281 0.4017 0.3255 

185 6 1.3115 5,350 0.6053 0.7062 

188 470 1.7765 83,496 0.7722 1.0042 

189 13 0.8060 13,002 0.4173 0.3887 

55 

Comparison of LTCH and ACH DRG Weights by DRG for 

AllSSO Cases (continued) 

Diagnosis 

Related Group 

(DRG) 

Number of 

LTCH 

Cases 

LTCH DRG 

Weight 

Number of 

ACH Cases 

ACH DRG 

Weight 

Diff Between 

LTCH 

and 

ACH 

DRG 

Weight 

202 72 1.0629 26,597 0.9130 0.1499 

203 51 1.2459 29,851 0.9390 0.3069 

204 161 1.6195 65,032 0.8124 0.8070 

205 74 1.1771 27,308 0.8414 0.3357 

207 35 1.2914 32,486 0.8000 0.4914 

211 1 0.1411 29,910 0.8679 (0.7268) 

213 50 2.8658 9,941 1.3179 1.5479 

217 283 2.8227 17,302 2.0906 0.7321 

225 14 2.0605 6,458 0.8165 1.2440 

233 24 3.2714 9,955 1.3963 1.8751 

235 4 1.1596 5,077 0.5240 0.6356 

236 28 1.2198 39,734 0.5049 0.7149 

238 565 1.7180 8,853 0.9431 0.7749 

239 82 1.1457 45,836 0.7293 0.4164 

240 44 1.0881 11,991 0.9164 0.1717 

242 122 1.7388 2,575 0.8116 0.9273 

243 188 1.0084 95,842 0.5242 0.4841 

244 41 1.1881 14,536 0.4989 0.6891 

245 14 0.9037 5,794 0.3338 0.5699 

246 7 1.1017 1,483 0.4229 0.6788 

247 27 0.8153 20,262 0.3991 0.4162 

248 71 1.1231 13,801 0.5982 0.5249 

249 1,922 1.1332 12,889 0.4698 0.6634 

253 17 1.0099 21,978 0.5279 0.4820 

254 3 0.5843 10,705 0.3110 0.2733 

256 174 1.5773 6,679 0.5704 1.0070 

263 1,079 2.8294 23,018 1.4324 1.3970 

264 58 1.6955 3,859 0.7394 0.9561 

265 26 2.2588 4,097 1.1148 1.1441 

269 140 3.0307 9,800 1.2373 1.7933 

271 2,001 1.6761 19,129 0.7163 0.9599 

272 22 1.1947 5,696 0.7094 0.4852 

274 9 1.7102 2,283 0.8063 0.9039 

277 701 1.2173 99,585 0.6089 0.6085 

278 8 0.7974 31,973 0.3775 0.4199 

280 59 1.0462 17,758 0.4956 0.5506 

281 3 0.2868 7,518 0.3393 (0.0526) 

283 23 1.3608 6,010 0.5101 0.8507 

285 27 3.2003 6,942 1.4518 1.7485 

287 121 2.3060 6,223 1.3171 0.9888 

294 244 1.4007 97,377 0.5410 0.8596 

296 411 1.3599 277,113 0.5988 0.7611 

297 25 0.7324 47,860 0.3537 0.3787 

56 

Comparison of LTCH and ACH DRG Weights by DRG for All 

SSO Cases (continued) 

Diagnosis 

Related Group 

(DRG) 

Number of 

LTCH 

Cases 

LTCH DRG 

Weight 

Number of 

ACH Cases 

ACH DRG 

Weight 

Diff Between LTCH 

and ACH 

DRG Weight 

300 25 1.0277 18,635 0.7665 0.2612 

301 3 0.8190 3,592 0.4293 0.3897 

315 135 2.8792 34,014 1.4505 1.4287 

316 853 1.4338 118,639 0.9037 0.5301 

317 24 1.4998 2,029 0.5932 0.9066 

318 16 1.5144 5,737 0.8261 0.6883 

320 438 1.3191 185,666 0.6115 0.7076 

321 47 0.9245 30,824 0.3951 0.5295 

331 155 1.4582 51,130 0.7395 0.7188 

332 6 0.6851 4,964 0.4171 0.2680 

334 1 2.3165 10,503 1.0330 1.2834 

346 14 1.1964 4,823 0.7118 0.4846 

350 30 1.2172 6,669 0.5139 0.7033 

357 1 1.4275 5,609 1.5861 (0.1586) 

366 22 1.3991 4,555 0.8907 0.5084 

368 21 1.5966 3,547 0.8121 0.7845 

395 71 1.4058 106,920 0.5770 0.8288 

397 38 1.4092 18,865 0.8811 0.5280 

398 27 1.2725 18,054 0.8609 0.4117 

403 113 1.3262 31,718 1.2678 0.0584 

409 65 1.7428 2,155 0.8678 0.8750 

413 28 1.4028 5,303 0.9209 0.4820 

415 333 2.9569 43,248 2.5272 0.4297 

416 1,551 1.5416 190,961 1.1082 0.4335 

418 652 1.5435 25,757 0.7420 0.8015 

421 26 1.6616 10,646 0.5206 1.1409 

423 130 1.6837 8,039 1.2646 0.4192 

425 11 0.5728 16,028 0.4726 0.1001 

426 12 0.4620 4,549 0.3544 0.1076 

428 3 0.7784 793 0.5080 0.2705 

429 96 1.2124 27,000 0.5679 0.6445 

430 724 0.8735 64,921 0.4732 0.4003 

431 8 0.6812 316 0.4605 0.2207 

432 1 0.1442 448 0.4542 (0.3099) 

439 16 2.6165 1,516 1.2242 1.3924 

440 123 2.5308 5,775 1.3162 1.2145 

442 37 3.1882 17,534 1.6867 1.5015 

443 2 0.4440 3,910 0.6826 (0.2386) 

444 40 1.5246 5,723 0.5211 1.0035 

445 3 0.8830 2,544 0.3498 0.5332 

57 

Comparison of LTCH ans ACH DRG Weights by DRG for All 

SSO Cases (continued) 

Diagnosis 

Related Group 

(DRG) 

Number of 

LTCH 

Cases 

TCH DRG 

Weight 

Number of 

ACH Cases 

ACH DRG 

Weight 

Diff Between 

LTCH and 

ACH DRG 

Weight 

452 573 1.7898 25,608 0.7280 1.0618 

453 22 1.1296 5,670 0.3566 0.7730 

461 231 2.6655 4,964 0.8157 1.8498 

462 1,528 1.1667 9,653 0.6749 0.4918 

463 248 0.9982 26,785 0.4779 0.5203 

464 34 0.7624 7,137 0.3473 0.4151 

465 335 1.0854 197 0.6196 0.4658 

466 1,629 1.1684 1,716 0.5641 0.6044 

468 325 4.2355 51,309 2.6472 1.5884 

473 22 1.5193 8,064 2.4235 (0.9042) 

475 4,959 3.4036 109,073 2.5009 0.9027 

477 119 2.9505 26,262 1.3152 1.6353 

482 1 3.6175 5,284 2.4243 1.1932 

484 1 2.3226 345 3.7689 (1.4463) 

487 10 1.3611 3,885 1.3904 (0.0293) 

489 113 1.7921 13,365 1.2968 0.4953 

490 27 1.1293 5,439 0.7331 0.3962 

508 10 1.4059 622 0.9554 0.4505 

510 4 1.3835 1,634 0.8220 0.5615 

521 13 0.5523 30,580 0.4956 0.0567 

523 2 0.4695 15,190 0.2756 0.1939 

524 10 0.8570 131,223 0.5104 0.3466 

537 

f 

11 3.1824 6,861 1.2683 1.9142 

Chairman JOHNSON. My first question is going to be to Dr. 

Votto and Mr. Altman, and also Ms. Moore if she cares to answer 

it. There seems to be a contradiction in your testimony. On the one 

hand, you say you cannot predict who is going to be a short stay 

and, on the other hand, you say you will have to not accept short 

stays if this proposal goes through. Discuss that issue. Those two 

comments were at different points in different statements, and so, 

please clarify that. 

Mr. ALTMAN. I will start, if that is okay. I think that what I 

testified was that we cannot predict and, therefore, I don’t think 

there is any way that we would be able to not admit people that 

would be short stay. that would be what our position would be, and 

that is what I am told by our physicians. I don’t think there is any 

way we can respond to this rule in the way that CMS assumes by 

taking fewer patients that would be short-stay outliers because I 

don’t think we can predict that. 

Chairman JOHNSON. Dr. Votto? 

Dr. VOTTO. I will comment on that. I agree that there is no way 

and there is no evidence or publication that suggest that there is 

any way to predict a short-stay outlier, just like there is really not 

a lot of evidence that predicts who can get off a ventilator and who 

cannot and the way you do your weaning, because there is just not 

a lot of evidence. 

I think that one of the problems with long-term acute care hospitals is in the definition. We are acute care hospitals; thus, we 

58 

have to take theoretically acutely ill patients. If you say—you take 

acutely ill patients but they have to have a long length of stay and 

they have to look similar to acute care patients, but you have to 

predict that they are going to stay a long time, this makes it a little bit tough. That is why it took us so long to develop the admission criteria. We believe that we have criteria that can distinguish 

these groups of patients, but as was stated, there is no way to predict. I believe that we can reduce the numbers of very short stay, 

possibly, with very good review by QIOs or whoever, if they audited 

the admission criteria and the use of the admission criteria. 

Chairman JOHNSON. This leads me to my next question. Dr. 

Votto, you have talked about spending 2 years developing criteria. 

Mr. Altman, you have talked about developing criteria. Ms. Moore, 

you have been very directly involved in it. How close are you three 

to being able to sit down and come together on a set of criteria that 

we could put in place? 

Dr. VOTTO. Well, it is March 15th, and I believe our criteria will 

be ready on March 31st. I don’t know—but if we then looked at trying to collaborate with others, I think that would be reasonable. I 

think we could put out criteria at this time and adjust them over 

time. As most places do that develop criteria, you usually bring 

them out, try them out. We have had them validated, as Laura 

said, by MassPRO. We believe that they are good criteria. We believe that they are useful. We have no problem, though, revisiting 

them at certain intervals, and we have to do that, anyway. 

Mr. ALTMAN. I think ours will be available March 30th. 

[Laughter.] 

Mr. ALTMAN. I think what would be helpful perhaps is some direction from Congress to CMS—and, by extension, the provider 

community—to sit down and work this through in an open, transparent, public way. We at ALTHA and Kindred are more than 

happy to sit down, we have been trying to sit down with various 

folks in the government to move this thing along. 

I think one thing that might be helpful is some direction from 

Congress to CMS and to us to engage in an open public process to 

come up with criteria that meets the policy goals that we all seem 

to share. I think that can be done very quickly. 

Chairman JOHNSON. Well, I hope you will take this hearing as 

giving you that direction. You cannot beat something with nothing. 

We have something that I think is not only not workable but positively negative and will have a damaging impact on the system. I 

think the answer is to go forward with what we have said we wanted to do for several years now and that MedPAC recommended— 

I don’t remember whether it was 2 or 3 years ago—that we need 

a criteria-based system, because it is best to start with that with 

you folks. Then we can back down on that for the other facilities. 

We need to get greater clarity about what kinds of patients you 

treat, recognizing that, of course, two people can come in the same 

state and one does remarkably well and one does very badly. 

The system is supposed to account for that already. The arbitrariness of short-stay policies in my estimation conflict with the 

underlying logic of a DRG system. I am not anxious to start down 

that path with facilities that deal with such extremely complex and 

ill patients. I would like to get some idea of whether you can begin 

59 

working together in your criteria to see whether you can merge 

your opinions. I am more familiar with Dr. Votto’s efforts since he 

is a neighbor, but I know his Committee has been nationwide. The 

experience cannot be all that different. The nature of for-profits 

and nonprofits in this arena I do not believe is all that significant. 

I think, Mr. Altman, with your experience of not only LTCHs but 

nursing homes who do this kind of—you know, do the stepdown, 

that could be very useful. Ms. Moore, are you optimistic that we 

could move forward on a criteria-based system in a reasonable period of time? 

Ms. MOORE. Like I said, our efforts are with NALTH, and I 

echo Dr. Votto’s statement, that we really do intend on having criteria for a long-term care hospital setting completed by the end of 

the month. As a quality improvement, performance improvement 

organization, we believe in and foster collaboration, and we would 

be more than happy to assist in the effort in any way. It helps us 

and the Medicare trust fund as well in terms of—— 

Chairman JOHNSON. One vastly overlooked strength of the 

QIOs is that you are actually on the ground in every single State 

and do see the care issues patient by patient and provider by provider. 

Ms. MOORE. Absolutely. 

Chairman JOHNSON. All right. Mr. Pomeroy? It is a pleasure to 

have Mr. Pomeroy with us. He has taken a great interest in a number of the issue areas before this Committee, and this is one of 

them. 

Mr. POMEROY. Madam Chairman, thank you very much, and 

although I am not a member of this Subcommittee, I follow your 

hearings with the greatest of interest, and this one involves a segment in the continuum of care that I really was not very familiar 

with. I found out, in response to the CMS rule change, North Dakota has two of these facilities. There are now 122 nationally? 

Mr. ALTMAN. More like 380. 

Mr. POMEROY. Three hundred and eighty? Oh, that is more 

than I thought. Is that a rapidly growing number? 

Mr. ALTMAN. It has grown by number of facilities in the last 

few years at a pretty good rate. I think it is important to put that 

into context, as we discussed before. Number one, many of these 

facilities are small. You can have a 40-, 50-, 60-bed hospital. 

Mr. POMEROY. Right. 

Mr. ALTMAN. It is not like especially the newer ones are very 

large. Number two, the interesting thing about the recent growth 

and your experience in particular is that there has been historic geographic mal-distribution of LTCHs concentrated in a small number of States. The growth has occurred in areas where there were 

not formerly LTCH services, including North Dakota and some 

other areas. 

Then, the last thing that we discussed about growth before you 

were able to join us is that the growth has really slowed down, particularly in the last year, with the implementation of the 25-percent HIH rule that Dr. Votto referenced, which has not even really 

fully gone into effect, so that growth really hasn’t even taken into 

effect those HIHs that are going to have to close as a result of this 

rule. The growth we do see is slowing down a little bit. The growth 

60 

that is occurring, is evening out the distribution and making this 

service available to a larger, a more diverse set of—-geographic set 

of beneficiaries. 

Then the last thing that we discussed and probably the most important, is that the best way to get at growth, because there is 

growth that is inappropriate, and then, there is growth that would 

arguably be appropriate because it is providing an expanded service to the people we want that service to be available to, and that 

is the medically complex, severely ill people, and that is the certification criteria. That will also address growth. The last thing I 

would say in terms of growth is that we at Kindred have seen a 

significant—— 

Mr. POMEROY. What is the status—so, there is a certification 

of what is a legitimate LTCH for purposes of Medicare reimbursement? 

Mr. ALTMAN. Right now, the only certification criteria for an 

LTCH is if you have a 25-day length of stay for your Medicare patients. We are part of a number of people, including policymakers, 

who say, you know what, that is not a targeted enough definition. 

We really ought to make it based on the patients more. 

Mr. POMEROY. It strikes me that this issue really brings to the 

fore the fact that we spend an awful lot of money on very ill people 

at the end of life who are struggling to hang on to life, frankly. Obviously, that is an essential function of the health care system, provide for people at that time, but it really does get extremely expensive. I was very interested in your testimony, Ms. Moore. You talk 

about noting, yes, these are expensive, but compared to what? If 

you look at treatment of those that are legitimately in these facilities, it really is not necessarily, more expensive. They are going to 

be an extremely expensive patient no matter where they are. They 

are very, very ill. Is that correct? 

Ms. MOORE. I am sorry. We really cannot comment on the payment system. We do not have experience with that. The evidence 

and data we collect do not talk to that. What we can say is that 

the screening criteria really help us direct the patient to the appropriate setting. 

Mr. POMEROY. Okay. On that point, so the industry is basically 

saying, look, develop an admission criteria. You have concerns 

here; develop an admit criteria. Don’t just whack rates, because 

you are going to what people that need to be in these facilities. The 

institutions in North Dakota that I visited with on Monday in preparation for this hearing told me that they believe these rates will 

dramatically shrink services and affect the willingness of hospitals 

to take transfers, and you are going to have ICUs stacking up all 

across the country. Do you have a comment on that? 

Ms. MOORE. What I can say, again, in developing the criteria 

with NALTH, one of the criterion we look at is weaning of mechanical ventilation, and what the criteria tells us is that when the patient fails weaning on a regular basis or repeatedly, that is a patient appropriate for the long-term care hospital setting. What that 

does do, is it frees up a short-term ICU bed in the acute care hospital setting and gives the patient the right expertise that they 

need. I can speak to that in terms of an example for the Committee. 

61 

Mr. POMEROY. Right. If that referral source is not available, 

what do you do? You have got—it looks like a long-term case here, 

weaning was not successful. Do you pull the plug on the ventilator 

because you have got nowhere to send them? Of course, you cannot 

do that. They stay in the ICU even though it is over indicated 

lengths of stay. That gets very expensive as well. This whole business is—it needs more of a holistic approach than just watch the 

rates and see what happens. We are talking about lives in the balance. I thank the Chairman. I yield back. 

Chairman JOHNSON. Thank you, Mr. Pomeroy. I do want to 

clarify a couple of things while you are before us just for the record. 

One is we look at the growth of both the long-term care hospitals 

and the hospitals within a hospital, satellites. What has driven 

that growth? 

Mr. ALTMAN. I am sorry. What has driven the growth—— 

Chairman JOHNSON. Why has there been a really dramatic increase in patients needing that level of care? This is not a hard 

question. I just want it on the record. It is so obvious to you that 

I see you staggering. I do not want some mysterious answer. I want 

to put on the record what kinds of treatment capability have we 

developed in the last decade that has allowed this expansion, because Dr. Votto’s hospital has been there a long, long time. When 

I was first elected to the State Senate 30 years ago, it was basically 

a residential facility. When you went there, you did not leave. I 

have seen the evolution. In the last, I do not know, 10 or 12 years, 

there have been some advances in medicine because you are a different operation now than you were even when you moved from a 

residential facility to an actual hospital. I think we need to put on 

the record what are some of the diagnoses that are, what are some 

of the treatment capabilities that are different, and why are people 

able to go home from these institutions and become independent 

when they are unlikely to be able to go home from either an acute 

care hospital or a nursing home. 

Dr. VOTTO. Okay. I will try to answer that question. First of all, 

technology has prolonged the lives of many people. I would like to 

answer Mr. Pomeroy’s question maybe before he leaves, real quick. 

Chairman JOHNSON. Do that first, yes. 

Dr. VOTTO. Or try to answer it, anyway, because I have to answer it anecdotally, not with side-by-side data. In our study looking 

at ventilator outcomes, our average patient costs approximately 

$68,000 from 23 different centers, so the average is pretty good and 

that is 1,400 patients. 

When we looked at a side-by-side population that was published 

in the Critical Care Journal, it looked at the length of stay of patients that were difficult to wean, not dissimilar to our patients, 

and the cost average, if you extrapolated the costs in an acute care 

hospital, which is about 2 to 3 times more per day than a long-term 

hospital, the cost comparison we came up with was about $210,000 

versus $68,000. 

Mrs. Johnson’s question gets to the issue of possibly why do we 

have more of these patients. The answer is that there is better 

technology. Patients who had septic shock 15 years ago probably 

died most of the time. Patients with septic shock nowadays, certainly many of them live. They end up on a ventilator. They end 

62 

up pretty sick, but they will live. They are very sick when they get 

out, and it takes them a long time to recover. 

The reason, I think, LTCHs in general have better outcomes is 

because we have a more programmatic rehabilitative approach 

with a team approach. In my hospital, we have a team that, as 

soon as you come in and you are a ventilator-weaning patient, just 

like NASA’s job was to get somebody on the Moon and everybody 

understood that was their job, get somebody on the Moon, for all 

those years and they got somebody on the Moon, our job is to get 

people off ventilators, so we spend all of our time, energy, and staff 

getting them off the ventilator. That is the job, so that physical 

therapy and occupational therapy see them the day they come in. 

Nutrition sees them the day they come in. 

It is an approach that you have to use with critically ill patients, 

or you don’t get good outcomes. Critical masses are the important 

issue in LTCHs. If you have a critical mass of patients who are 

ventilator dependent, then you know how to do it. You have a 

whole team that can do it. If you have patients who are ventilator 

dependent scattered throughout a big acute care hospital, you cannot have the team approach. The same with wounds, the same with 

head injury, lots of specific diagnostic categories that relate to 

LTCH care. I would think that that would be the answer that I 

would give for those questions. 

Chairman JOHNSON. Would you like to add anything? 

Mr. ALTMAN. The only thing I would add is the notion of interdisciplinary versus multidisciplinary care, and the interdisciplinary 

care approach that Dr. Votto has described, where you have a team 

captain and all the disciplines working toward a common goal is 

really not the way short-term acute care hospitals are set up. They 

are set up to stabilize and treat, and they do a very good job of 

that. They are not set up to do the extended course of care that 

is what we do in LTCHs. 

Chairman JOHNSON. If you come in for knee replacement and 

you have heart problems, you go down to the cardiac floor. 

Dr. VOTTO. Right. 

Mr. ALTMAN. Right. 

Chairman JOHNSON. It is a very different concept, and I think 

we need to recognize that. 

The last thing I want to get on the record is your experience, Dr. 

Votto—in the cost of a new bed, building a free-standing institution 

versus the cost of building a bed in a hospital that has space. 

Dr. VOTTO. Well, the example that I used, when we looked at 

25 beds costing $25 million, I found out that the industry—this is 

not unusual in the industry. A million dollars a bed for a hospital 

is pretty much fairly standard, at least in New England. When we 

realized that we could afford to do that, we looked to partner, and 

there are certainly many older hospitals in New England with lots 

of new attachments, new buildings to them, and so they have units 

that they have not used. What we found was that we could renovate a very large unit, as we said, 28 beds, at a price 10 percent 

of the cost of building a new building. It seemed like a very logical 

approach. 

I believe that we have the same—we do have the same programs 

there as we have at the base hospital. One advantage that we have 

63 

at the satellite is that we can actually take even sicker patients because we can get surgeons to come over more quickly, and if there 

are diagnostic tests that you absolutely need, you can get them a 

little bit easier. There are advantages to the satellite. 

Chairman JOHNSON. All right. Thank you very much for your 

testimony. It has been very helpful. We are expecting that the RTI 

study will be done in a couple of months or so. I know some of you 

have been interviewed by their researchers and have had input 

into it, and we certainly will encourage them to move along rapidly. 

I encourage you to move along rapidly so that we can get some 

sense of what is the consensus from the care giver community and 

what impact you think it will have. That way we will be able to 

compare your analysis, your information with the administration’s 

analysis and information, which has not yet been made public and 

should be made public, and what RTI is doing. Because, clearly, we 

need to move to a criteria-based system, and we need to figure out 

how we make that transition, and that is number one. Then after 

that is done, we will know whether there is or is not a legitimate 

problem with people being in the high-cost setting of an LTCH 

versus a more appropriate setting for that particular patient of a 

nursing home or an acute care facility. 

That is our goal. We must pursue it, and you will just have to 

accelerate your time to do this and come to some conclusion so you 

can provide guidance. You know, the real answer is, in a democracy, for the real world to provide guidance to the government. The 

government should only come in to do what the real world cannot 

on their own, and you cannot individually assure that the criteria 

is the same for all institutions. We can do that. The criteria should 

come from the patient-physician level, and I am pleased that you 

are so far along, and we look forward to working with you, and 

thank you, Ms. Moore, for the role of the Massachusetts QIO in not 

only developing this approach and teaching other QIOs and doing 

some basic work over the last few years, but also for working with 

NALTH to review their proposal. 

Thank you very much. 

[Whereupon, at 4:45 p.m., the hearing was adjourned.] 

[Question submitted from Mr. Sam Johnson to Mr. Kuhn and his 

response follow:] 

Question: In your testimony, you mentioned that CMS estimates the margins of Long-term Care Hospitals (LTCHs) to be around 12 percent. Do 

those margins take into account changes in regulation that have taken 

place over the last couple years, such as the so-called ‘‘25-percent rule,’’ or 

the re-weighting of the DRGs? Do you think that those changes have taken 

full effect? If not, do you think there is any wisdom in letting those policies 

run their course? 

Answer: In the long-term care hospital prospective payment system (LTCH PPS) 

final rule for rate year (RY) 2007, the Centers for Medicare & Medicaid Services 

(CMS) calculated ‘‘revenue-weighted’’ Medicare margins to evaluate the overall financial status of LTCHs. CMS’ analysis of the latest available LTCH data found 

that LTCH Medicare margins for fiscal year (FY) 2003—the first year of the LTCH 

PPS—were 7.8 percent, and preliminary data for FY 2004 based on the most recent 

data revealed a Medicare margin of 12.7 percent. These estimates do not take into 

account changes in the regulations that have taken place over the last few years, 

including the impact of the ‘‘25-percent rule’’ or the re-weighting of the long-term 

care diagnosis related groups (LTC–DRGs). 

The ‘‘25-percent rule’’ is a special payment provision for long-term care hospitalswithin-hospitals (HwHs) and satellites, which comprise approximately 39.5 percent 

of all LTCHs. Under this policy, CMS adjusts payments for patients admitted from 

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the host hospital to the co-located LTCH that exceed a specified threshold percentage (in most cases, 25 percent). For cost reporting periods beginning on or after October 1, 2003, which was the effective date of the rule, the only affected facilities 

were those co-located LTCHs that had their first cost reporting period as a LTCH 

after the effective date. Existing co-located LTCHs were held-harmless for their first 

cost reporting period following the effective date of the regulation. Therefore, CMS 

did not have the data to evaluate the impact of this policy, and could not factor in 

the anticipated behavioral changes by both the host hospital and the co-located 

LTCHs. 

CMS determines LTC–DRG relative weights to account for differences in resource 

use by LTCH patients who typically have complex cases and multiple medical problems. For payments for discharges occurring in FY 2006, CMS recalibrated the 

LTC–DRG relative weights based on an analysis of LTCH claims data from FY 

2004. The recalibration of LTC–DRG weights only corrects for coding improvement 

for the purpose of making accurate LTCH PPS payments in FY 2006. Annual recalibration does not serve to account for payments that were made based on improved coding (rather than patient severity) in prior years. 

Based on the information available to us, we do not believe that it would be appropriate to ‘‘postpone implementation’’ of the policies finalized for FY 2007, including the zero percent update to the standard Federal rate, the payment adjustment 

for short-stay outlier cases, and the case mix adjustment to the market basket, 

pending an analysis of other impacts on LTCH payment adequacy. 

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