For example, the Medicare DRG reimbursement system provides financial motivation to discharge individuals quickly from hospital settings. As discharges to nursing facilities are easier and quicker to arrange than are discharges to community settings, Medicare beneficiaries may be commonly discharged to nursing facilities. However, the Medicaid program prefers to have beneficiaries discharged directly to the community setting from the hospital. It is easier to divert someone from a nursing facility than to move them once admitted. Nursing facilities have a financial incentive to send clients to the hospital for an acute episode, because their costs decrease.
Some states even pay for medical leave days in such situations.
As a result, Medicare is saddled with higher expenditures because of the fractured incentives caused by public program boundaries. Currently, services are typically provided based upon what the payment source will reimburse, rather than what the individual client needs. For example, many dually eligible clients who are discharged from a hospital to recuperate at home need skilled nursing services for only a short period of time, but also need personal care and homemaker services. Under Medicare, they cannot get the personal care and homemaker services, which might prevent future hospitalizations. In addition, if they are not actually homebound, they do not qualify for in-home services.