Between 2001 and 2013, the cost of Medicare post acute care (PAC) services doubled to $59 billion, bringing the issue to the forefront of the public policy debate and prompting health plans and ACOs to take a closer look at their PAC spend. A lack of clear guidelines for PAC services coupled with the current siloed approach to PAC payments has contributed to wide variation in PAC usage and costs. Existing Medicare PAC payment policies with separate payment methodologies for SNF, IRF, Home Health and LTC hospitals, focus on the setting of care not the care needs of the individual patient. Patients with the same diagnoses and risk factors are treated in different PAC settings with similar outcomes but vastly different costs. The current system is an obstacle to providing patient centered care. It neither encourages collaboration and coordination across PAC settings nor provides incentives to refer patients to the most efficient and effective setting.

In response to mandates included in the Improving Medicare Post-Acute Care Transformation Act of 2014, (IMPACT) the Medicare Payment Advisory Commission (MedPAC) approved a conceptual model for a uniform  PAC prospective payment system which will be presented to Congress in June, 2016. The proposed payment model would extend across the four care settings and provide base payments based on a patient’s pre-PAC clinical profile. MedPAC is recommending a common unit of service and risk-adjustment methodology, separate payment tiers for institutional and home based care, and high-cost and short stay outliers. The new system will shift payments from rehabilitation care to medical care and reduce the variation in profitability by type of case while raising payments to providers that treat medically complex patients. The model will be tied to at least two value based purchasing initiatives: 1) a readmission measure covering the stay or period of care plus a period of time following the stay (possibly 60 or 90 days) and 2) a measure of spending per beneficiary by provider type and episode type that would extend 30 days post discharge or period of care.

The use of site neutral payments for PAC services, a topic of discussion for several years, is finally moving from concept to implementation. The model is not an end point, but a step in the journey toward an episode based payment model. Site neutral payments are expected to encourage collaboration and better coordination of care across all PAC settings and save Medicare money. While it is true that better care coordination and oversight across the continuum of care can reduce readmissions and length of stay in the acute and post acute sectors, and ultimately, result in improved costs for the entire episode of care, this will take a level of care transitions management and PAC care management that is not the industry norm. As long as PAC is still seen as separate and distinct from acute care and not part of a fully integrated episode of care, the full value will not be achieved.

In this transforming marketplace, ACOs, MA plans and bundled payment participants have the potential to integrate the full care continuum and take advantage of the resultant savings potential. However, health plans have not historically focused on the PAC sector and many lack the expertise to manage these services. Furthermore, most PAC providers are still being paid on a fee for service basis rather than a shared risk model. While site neutral payments will help to break down barriers to directing patients to the most effective PAC provider, a fully integrated, patient-centric model with shared risk will be critical to maximizing the full potential of PAC. At risk-organizations will need to know which PAC providers in your market are the best performers by disease category and  direct your patients to the best provider based on their particular needs and risk profile. Ensuring the fastest path to the home will continue to be key to reducing costs and improving patient satisfaction.

PAC site neutral payments are an important step in fixing current system shortcomings. However, until acute care and PAC services are integrated and aligned in an episode based payment model, the full value of PAC management will not be achieved.