House Committee Releases Draft of President’s Proposals to Strengthen Medicare Post-Acute Care

On August 2, 2013, the House Ways and Means Committee released a draft of the Obama Administration’s proposals addressing flaws in the Medicare post-acute care (PAC) system. Seventy-three percent of variation in Medicare spending is attributed to PAC and the payment systems have high margins. In order to ensure that patients are receiving the appropriate care in the appropriate setting, the President issued proposals in his fiscal year (FY 2014) budget addressing five specific changes to PAC. The Committee welcomes comments on these proposals via email at until August 30, 2013.


Many Medicare beneficiaries recovering from acute hospital stays require continued PAC. Often, these patients receive PAC from home health agencies (HHAs), skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs), and long-term care hospitals (LTCHs). In part because Medicare rules do not clearly specify who qualifies for care in each setting, facilities in various geographic settings provide care to diverse groups of patients at divergent prices. To address the flaws in the PAC system and strengthen the Medicare program, the President has proposed to reduce market basket updates for HHAs, SNFs, IRFs, and LTCHs; create site-neutral payments between IRFs and SNFs for certain procedures; enact an IRF 75 percent rule; establish an SNF readmissions program; and create PAC bundled payments.

Market Basket Reduction

The market basket index estimates how much more or less it costs a provider to purchase goods and services from year to year. The Administration proposes reducing market basket payment updates for the four types of PAC providers listed above by 1.1 percent annually from 2014 through 2023.

IRF-Specific Proposals

Because IRFs are paid at a higher rate than SNFs for certain procedures, providers may seek to maximize payments. To avoid these non-clinical decisions and to ensure that only those patients who require such care are housed in IRFs, the President proposes adjusting payments for three conditions involving hips, knees, and pulmonary issues, as well as conditions selected by the Secretary of HHS. Additionally, under the current system IRFs may receive cost-based, as opposed to prospective payment system (PPS), reimbursement, if they demonstrate that 60 percent of their patients have a qualifying condition. The Administration’s proposal would return the rate to its former level of 75 percent.

SNF Readmissions Penalty

The Administration also proposes creating an SNF readmissions program that would penalize SNFs when high rates of their patients are readmitted for conditions including heart failure, heart attack, pneumonia, and, potentially, chronic obstructive pulmonary disorder and hip and knee replacement, by reducing their market basket by up to 3 percent. The penalty would be implemented in 2017.


Finally, the President would bundle PAC services for the provider types listed above for at least half of all payments beginning in 2018 in order to discourage the current fee-for-service volume over value mentality. The rate would be set to yield a permanent, cumulative downward adjustment of 2.85 percent by 2020.