The Balanced Budget Act of 1997 means new challenges for those in the respiratory care field.

The Balanced Budget Act of 1997, which restructures the reimbursement system for postacute providers, affects all levels of the postacute industry. The act shifts reimbursement from predominantly a cost-based system to a prospective payment system (PPS). Because Medicare represents 70 percent to 80 percent of the patients receiving care in the different postacute levels of care, this change will dramatically impact the postacute care continuum. HCFA will be using a staggered approach to implementing these changes over the next 3 to 5 years. Different levels of care will move into the PPS era at different times, and existing providers will be transitioned into the PPS system over a 3-year period. As a result, the postacute continuum will face a tumultuous time.

These reimbursement changes will directly impact all levels of ancillary postacute health care services, with significant ramifications for RCPs. Over the past several years, the demand for respiratory services has increased in the postacute levels of care. Therefore, the proposed changes translate to new challenges for RCPs.

Subacute Leads the Way

RCPs can expect to feel the impact of PPS at all levels of postacute. The impact will be greatest, however, on long-term acute care and subacute care. The Department of Health and Human Services (HHS) is still in the early planning stages for reconfiguring the payment system for long-term care. HCFA plans to announce its approach for this postacute service in 1999. The changes for subacute care (also known as skilled or transitional care) are already well under way. As one of the newer members of the postacute care continuum, subacute care should theoretically be the last of the levels to be addressed. HCFA, however, selected subacute for the dubious honor of being first for several reasons, including:

  • Uncontrolled growth in expenditures. Growth in Medicare expenditures for skilled care has been staggering. As illustrated in Figure 1, page 42, between 1989 and 1996, Medicare expenditures for skilled care increased more than 300 percent. By 1996, Medicare spent more than $11 billion for skilled care. If these trends continue at the same rate, by the year 2000, Medicare expenditures would reach $25 billion or more. Such increases would be unacceptable to HCFA.
  • Double-payment concerns. HCFA is concerned about the decreasing length of stay of acute care, which in turn compounds the growth in expenditures for skilled care. When the diagnosis related group (DRG) system was implemented in the early 1980s, HCFA set its payment rates based on the practice of care at that time. This included a Medicare average length of stay that was approximately 40 percent longer than today’s stay. HCFA became wary as hospitals accelerated their efforts to reduce the length of stay through the use of subacute or skilled care. The agency became convinced that it was overpaying for acute care patients with a shorter-than-average length of stay and for the skilled care that was being used to decrease the stay in acute care.
  • Need to discourage new providers. The existing payment system encouraged and rewarded continued proliferation of new providers for subacute care. The system gave new providers a 3-year window during

    which payment was cost-based. Assuming costs were reasonable, that meant the provider was reimbursed costs for up to 4 years. In addition, the provider was reimbursed 100 percent for capital costs incurred in building or renovating a facility. No wonder there has been a proliferation of new nursing homes and subacute/transitional care units within hospitals.

  • Ease of implementation. HCFA has collected a database from skilled care for several years. This allows for the development and testing of a payment method that could be implemented in a relatively short time.

    When Subacute Care Will Be Impacted

    Similar to providers, RCPs will feel the impact of the change to PPS as early as this year. Figure 2, page 44, shows that some skilled-care providers moved into PPS as early as July 1998, with the beginning of their fiscal year. By June 1999, all subacute care providers will be under a form of PPS payment.

    There are two different PPS implementation approaches. For providers with subacute services less than 3 years old, full PPS will be implemented in 1998. These newer providers will operate under full PPS reimbursement for the start of fiscal year 1998. For the other providers, PPS will transition over a 3-year period, thereby giving them time to adjust to the new payment system. The timing difference between old and new provider status is significant to RCPs. Those working with the newer providers must make rapid changes to accommodate the new payment system. Those aligned with provider services that will transition have time to determine how best to adjust the role of the RCP in this new era of subacute care.

    Central to developing the right strategy is a full understanding of how the system works now and what to expect in the future. The differences between the two payment systems are outlined in Figure 3, page 45.

    Today’s System

    Today the nursing and administrative component is under a fixed reimbursement payment. Ancillary services such as respiratory therapy and rehabilitation, however, are reimbursed at cost. This not only includes the direct cost of the service but also the facility’s overhead costs. There was no cap on the amount of services used. Consequently, the more services provided, the greater the revenue from the service rendered. Because of the fixed costs of nursing, ancillary services like respiratory therapy provided much needed relief for the beleaguered nursing staff.

    In addition, having respiratory services available enabled providers to offer more complex pulmonary services such as weaning of ventilator patients and care of patients with tracheotomies. Under the current system, providers other than the nursing home can directly bill HCFA for services rendered in subacute or skilled care. As a result, much of respiratory therapy services were provided and directly billed to HCFA by agencies or hospitals that were providing these services to subacute or skilled patients. The lack of controls on the ancillary services provided the conditions for respiratory therapy to flourish. Therefore, almost all care needed by patients with pulmonary or respiratory conditions is directly provided by RCPs.

    New PPS System

    The payment rate is all-inclusive under the new system. It covers all services delivered under a relatively fixed-payment rate regardless of frequency and duration of services delivered. Although the providers can subcontract for certain services, they are now responsible for billing all the services. Unlike today, only the hospital-based subacute or nursing home provider will receive direct payment from HCFA. It is important to note that PPS payments will be based on the intensity of resources required. The minimum data set (MDS) will be used to set the plan of care and to define the resource intensity needs of patients. The resource utilization group, third edition (RUGS-III), will form the basis for reimbursement.

    The higher the documented intensity needs, the higher the payment will be, but only to a limit. Although payment will be aligned with resource requirements, the rate of payment is still limited. Figure 4, page 45, indicates the highest rate for rehabilitation is $384 a day. Although respiratory therapy is not singled out in these payments, these services most likely would be included under the special care or extensive care categories. In effect, for patients with respiratory therapy needs, payment will range from $177 to $253 a day, depending on severity and location (urban versus rural).

    This payment will include both capital costs and the cost of care. Given these parameters, the dollars available to provide care are limited. The current payments for patients with similar conditions are not available because so much of the ancillary services are billed by providers outside the long-term care facility. Based on the author’s experience, however, the cost of care for extensive care patients significantly exceeds even the high end of the payment schedule. As noted previously, implementation will be handled differently for established and new providers (those still in the cost-based period).

    For existing providers, the proposed implementation takes place over a 3-year period. In year 1, providers will be paid based on 75 percent of current costs and 25 percent on the new PPS system. In year 2, the mix is 50 percent current and 50 percent PPS. In year 3, the payment is 75 percent PPS and 25 percent cost based. By year 4, the entire payment will be PPS based. There is no transition period for new providers who are still receiving cost-based reimbursement for all costs. They will be on 100 percent PPS reimbursement, starting fiscal year 1998. With no time to adjust to the new payment system, these providers are at high risk financially. It is uncertain how they will weather the dramatic shift in reimbursement.

    What to Expect

    The change in reimbursement can be expected to impact RCPs in several ways, including:

  • Decreased access to subacute services. The ability of subacute providers to accommodate the dramatic change in reimbursement is yet to be seen. Hospital-based units will be hardest hit. On balance, hospitals have significantly greater overhead and salary costs. Until now they have been able to be reimbursed for these costs either partially or fully. Under PPS this is not the case. Given these higher costs and the unit size of most hospital-based skilled care, however, it is unlikely that these units can be operated profitably.
  • Higher use of internal professional staff for less complex respiratory therapy needs. The bundled pricing payment will discourage the use of ancillary services. As a result, subacute providers will look to cross-train nursing staff to handle the less complex cases but will still use RCPs for the more complex and difficult cases.
  • Role transition from providing direct care to managing care. This new role will still rely on therapists to help develop the plan of care and monitor the process and patient progress. Much monitoring, however, will be done via teleconferences rather than on- site. At the facility level, providers will be looking to therapists to be involved in utilization and quality review to ensure acceptable standards of care needed for certification and patient care are evident.
  • Increased demand for ambulatory services. The length of stay in subacute care is not capped under PPS reimbursement. The reimbursement system is structured, however, so that the higher levels of payment are correlated to lower functional levels in activities of daily living. Stated differently, the more independent the patient, the lower the reimbursement. Therefore, providers probably will look to discharge patients sooner. Along with the recent restrictions imposed on home health care by HCFA, this will increase the demand for ambulatory care. For RCPs, this means caring for more patients on an ambulatory basis than previously.
  • A shift away from disposable equipment. Disposable equipment was not a problem under the old system of payment, but it is under PPS. To help control costs, providers will be looking to therapists to find new ways to save costs on supplies and equipment. Regrettably, these changes translate into a reduced demand for therapists in subacute care. Benchmarks from the rehabilitation reengineering for subacute care suggest the demand for professional therapy staff could be reduced by as much as 5 percent. Although demand for professional staff is expected to shrink, the number of “technical”-level staff will increase.

    Riding Out the Storm

    The full impact from PPS will not be known until well into 1999. By then, providers will have some sense of how the system works under PPS. RCPs should take the following steps now, however, to maximize their position in this level of postacute care:

  • Become highly knowledgeable of the RUGS system and how respiratory therapy fits into the overall picture.
  • Continue to track the Federal Register to learn more about how the system will continue to unfold for subacute services.
  • Through national and local linkages, become very active in how the system will be shaped for long-term acute care. By intervening before the system is shaped, RCPs have a better opportunity to control outcomes.
  • Learn about your clients. There are two questions that therapists should ask any subacute provider: 1) Is the facility in its cost years? 2) If no, was 1995 a strong cost year for you? If in the cost years, learn the facility’s expected payment range for pulmonary and respiratory therapy patients. If the provider indicates that 1995 was a strong cost year as measured in the cost report and any additional requests for payment, consider this the best of all situations. This provider has about 2 years before the full impact of PPS will be felt.
  • Learn how to document to ensure effective payment. With the payment tied to the assessment and plan of action, documentation is key to achieving the right level of reimbursement. In addition to compliance issues, failure to document properly can result in a dramatically reduced payment (estimated $179 per day) that cannot be appealed.
  • Think creatively. The fact that payment is changing does not negate that patients still need services. Therapists must consider how to develop a team approach that can accomplish two major outcomes:
    1) strengthen the skills of the internal staff; and 2) use an associate level of staff to provide the services in a cost-effective manner for the patient, provider, and therapist.
  • Know your costs. This not only includes your services but the supplies and equipment costs as well. Look to reduce costs by about 30 percent. This appears to be the benchmark many providers are using to gauge the amount of needed reengineering to operate profitably.
  • Start documenting the cost savings for respiratory therapy now. Many respiratory therapists have argued that their intervention makes a difference. Yet today, little information is available to substantiate these claims. By looking at costs and outcomes, RCPs will strengthen their position and role for the future.
  • Explore the opportunity for developing a strong ambulatory practice that will help supplement the impact from the subacute market shrinkage. The road ahead is anything but rosy for respiratory therapy, but RCPs should not become overly alarmed. By acting now, RCPs can help shape their role for other levels of the continuum and create new opportunities in the continuum of care for the future.

    Frances J. Fowler is president of Fowler Healthcare Affiliates Inc, an Atlanta-based national health care consulting firm.