The new Administration got off to a fast start in February when it distributed its FY 2010 budget blueprint, “A New Era of Responsibility—Renewing American’s Promise.” In the health care area, the outline proposed to reform health care and finance it through a series of changes in the Medicare and Medicaid programs and altering tax policy. The total savings to finance the health care reform reserve fund is $633.8 billion over 10 years. One proposal in particular is of great interest, if not angst, for rehabilitation providers. In the shorthand, it is referred to as “bundling.” It would group together acute care hospital payments under the Medicare Severity Diagnosis Related Groups (MS-DRGs) and all post-acute care (PAC) payments, and pay the acute hospitals an add-on to the MS-DRGs for the PAC cost for treating cases included in that MS-DRG. The acute hospital would be responsible for all care for the episode of care, which in this proposal is 30 days, and bear all the risk. The PAC providers include long-term care hospitals (LTCHs), inpatient rehabilitation hospitals and units (IRH/Us), skilled nursing facilities (SNFs), home health agencies (HHAs), and possibly hospital-based outpatient rehabilitation facilities.For example, if the MS –DRG for a stroke with complications and comorbidities paid $8,000 unadjusted and the average post acute care costs associated for that MS-DRG were found to be $10,000 the hospital would receive $18,000. These figures are simply examples and not taken from any data. Note that under the inpatient rehabilitation facilities prospective payment system (IRF PPS) the most complicated stroke at the highest tier payment is case mix group (CMG) 0110 and is paid $35,267.79 in FY 2009, unadjusted.

The proposal is mentioned again in the FY 2010 HHS Budget in Brief released on May 7th. It is similar to a proposal included in the Congressional Budget Office’s (CBO) report on health care titled: “Budget Options, Volume 1: Health Care,” issued in December 2008. On April 28, the Senate Finance Committee issued “Transforming the Health Care Delivery System: Proposals to Improve Patient Care and Reduce Health Care Costs.” A similar bundling option is included in that paper which would phase in acute—post acute bundling from FY 2015 through FY 2019. And, Senator Jeff Bingaman of New Mexico has introduced S. 259, the Medicare Quality and Payment Reform Act of 2009 which would authorize a bundling pilot program.

Bundling generally refers to a set payment for a defined amount or group of services over a stated period of time, or episode. This description may sound surprisingly similar to the way capitated payments are defined in the managed care arena. Capitation contracts with insurance companies turned out to be a mistake for many hospitals and health systems in the late 1980s and 1990s. Hospitals generally were unable to manage patient resources as efficiently as needed to sustain their operations. Additionally, public backlash around choice and access emerged at the peak of managed care. Patients became distraught and angry when they realized they had lost all ability to choose the health care they wanted just when they needed these options the most.

In the past, this proposal has simply chilled the heart of all PAC providers. Over the last 2 years, the concept has enjoyed a resurgence since the initial proposal in 1989. From a policy perspective, one may say this issue is becoming ripe as various factors are converging, some of which did not exist during its prior iterations. Current policy makers, think tanks, and researchers interested in various approaches to bundling include the Medicare Payment Advisory Commission (MedPAC), the Center for American Progress, and the Commonwealth Fund, as well as researchers at the University of Colorado, University of Minnesota, and Brandeis University.

Interest in the concept came about as a result of the behavioral changes occurring after the inpatient prospective payment system (IPPS) was implemented in 1983. It proved to be a boon for the growth in post acute care, and the phrase “sooner and sicker” became synonymous with incentives under the DRGs to discharge patients quickly. The Balanced Budget Act of 1997 (BBA) authorized extensive changes for all PAC providers, primarily authorizing implementation of the various prospective payment systems (PPSs). After 10 years, however, there is a growing discontent with these various silos of care. Policy makers look at all settings, see that stroke patients are admitted in all settings, and ask why there are differences in payment for what appear to be the same patients.

However, some of the broader issues that both entertain and puzzle those in Washington were not considered by the BBA. They deal with cost, quality, and access. The final effect of the BBA was to partially realign which patients were treated, where they were treated, and the nature and scope of services provided. As a result, there are now considerably more data about the types of patients treated in each setting, their clinical (and for inpatient rehabilitation hospitals and units, functional) conditions, claims data, updated cost reports, and specific amounts of payment by provider and by payment system. And, as a result, there is confusion, concern, and impatience among policy makers, Congressional members, and budget officials with the postacute provider field. They are trying to understand, from a gross observational level, how patients treated in the various settings differ, and the product (services) for which the government is paying in each setting. As noted, the policy concern is that Medicare may be paying different amounts to different types of PAC providers for patients with essentially similar needs. Enter (again) bundling, coupled with various quality or outcomes measures, as an attractive alternative to the multiple payment systems, administrative overlap, lack of care coordination, frequent readmissions, and perceived or real excessive utilization and payment.

The policy questions pertaining to cost, access, quality, and outcomes are the ones that are expected, in the minds of many, to be examined closely before any steps are taken. The bundling proposal and research thereon do not delve into these critical issues at this juncture. While the PAC PPSs have provided reams of data, various gaps in information remain in providing a true picture of PAC patients in order to allow for a reasonable approach to bundling or other types of postacute payment reform. Simply grouping patients by the MS-DRGs and cross referencing payment can be established. However, cross-site comparison remains difficult given the well-documented differences in data collection tools, times for assessments, and patient classification systems among PAC providers. Hence, even after implementation of the multiple postacute PPSs, there is no way to have an apples to apples comparison on those factors. Similar measures of functional status and change that determine successful treatment and outcomes, compared with cost and venue of care, may need to be established and become components of any reasoned Medicare payment reform proposal as global as bundling. The Post Acute Care Payment Reform Demonstration Project (PAC-PRD) is the closest step in this direction.

Before moving forward with bundling, additional issues need to be considered such as:

  • Patients need to retain choice in determining where they receive rehabilitation services. Ironically, the practice may in fact bring new costs to the system. Persons with disabilities, Medicare beneficiaries, and all patients should have access to clinically appropriate services. If appropriate services are not delivered at all or in a timely manner, there may be increased complications and hospital readmissions of patients. This effect of bundling would likely reduce or eliminate anticipated savings.
  • It should lead to better outcomes. These are usually expressed as improved functioning and more independent living situations at some time after discharge from the hospital. Acute providers as well as postacute providers would need to be held accountable for appropriate equality and care outcomes to assure proper care is provided. Safeguards need to assure that all patients, despite their medical and functional severity, are properly served.
  • The “bundle holder” and its responsibilities overall need to be defined.
  • Any approach needs to be risk adjusted as well as acknowledge geographic differences.
  • Physicians need to retain their critical role in patient discharge and postacute placement.
  • Policy makers need to review the current federal and state laws and regulations that must be addressed. For example, would it be necessary to retain the infamous 75% rule for inpatient rehabilitation facilities?
  • Providing financial and other incentives for acute hospitals to assure they admit severely affected patients.
  • Many acute hospitals do not have rehabilitation units (80%) and therefore lack expertise in determining patient rehabilitation needs and services required to meet them. Generally, evaluation of such patients and design of rehabilitation programs are done by the provider of rehabilitation services.
  • Bundling should improve the continuity and coordination of care. This includes both better discharge planning as well as improved transfer of information from the acute hospital to the PAC provider.
  • Bundling should increase the efficiency of care. This implies that in a system that is at least revenue neutral, bundling should maximize available resources for services and should not require expensive administrative overhead. At a minimum, the bundling system should be operationally feasible.
  • Bundling should encourage appropriate use of post-acute care levels, where appropriateness is assessed by the probability of better function or adherence to well-established criteria defining the outcome and timing of appropriate PAC.
  • Any such system needs to be acceptable to the various affected groups—rehabilitation providers, patients, acute hospitals, and payors.

Rehabilitation providers may wish to follow this debate closely. Any bundling proposal should be examined thoroughly before implementation, be initiated as a demonstration project, and then revised based on careful review of the demonstration experience. The bundling idea poses a variety of access, policy, data, and administrative challenges that must be carefully considered and thoughtfully resolved. The technical, operational, and clinical complexities and challenges entailed are extensive. The feasibility and viability of bundling must be tested and demonstrated before adoption. Ultimately, patient care, choice, and outcomes need to remain as the priority.

Carolyn C. Zollar, JD, is vice president for Government Relations & Policy Development, American Medical Rehabilitation Providers Association, Washington, DC. She can be contacted at .