Eliminating TEFRA incentive payments may increase Medicare budget
Analyst estimates costs could rise by $1 billion
Eliminating incentive payments for rehab providers who stay below their TEFRA limits could result in as much as a $1 billion additional outlay annually by the Health Care Financing Administration (HCFA), a rehab reimbursement analyst has concluded. According to calculations by Sam Fleming of Fleming-AOD Inc. in Washington, DC, consultant to the American Medical Rehabilitation Providers Association (AMRPA), if all providers let their costs per discharge rise to their TEFRA limits, Medicare reimbursement to rehab providers would increase by $1 billion. If the average rehab length of stay increases by just one day, the cost to the Medicare Trust Fund would be about $220 million, he says. Fleming based his calculations on 1996 HCFA cost reports.
The Balanced Budget Act of 1997 (BBA) provision that eliminated the incentive payments is expected to cut $140 million from the Medicare budget, he adds. Under the BBA, incentive payments to rehab providers who stay below their TEFRA limits will be reduced sharply. Congress presumed that would reduce Medicare expenditures, but it may do the opposite, Fleming says. In the absence of a financial incentive to hold down costs, providers may be moved by financial and clinical considerations to incur costs at or near their TEFRA limits, he explains.
In the past, facilities received a bonus payment from HCFA if their costs per discharge were below their reimbursement limit under the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982. Under TEFRA, providers are reimbursed a set amount for each discharge based on a fixed per patient limit calculated for each facility during a base year. If a hospital fell below its TEFRA rate, Medicare paid the facility 50% of the difference, or 5% of the target rate, whichever was lower. The new formula for calculating incentive payments contains so many qualifiers it virtually eliminates the incentive payments.
The $1 billion increase could be even higher, Fleming says, because his calculations didn't consider the number of providers who have taken advantage an optional BBA rebasing provision and raised their TEFRA limit. Some 300 providers were eligible to take advantage of the BBA provision allowing them to recalculate their base payment because their costs were higher than their TEFRA limit for three of the five years from 1989 to 1995.
The new limits weren't available to Fleming when he did his calculations, but his figures did take into account the maximum TEFRA reimbursement limit of $19,250 per discharge. The new legislation reduced the top TEFRA limits to 75% of rates for all providers reimbursed under TEFRA.
Many rehab providers have depended on the incentive payments as essentially free money that could be added to the bottom line. Clinicians have been under pressure from their hospitals' financial departments to cut the length of stay (LOS) to maximize incentive payments. That all could change, Fleming asserts.
"With the sharp reduction in incentive payments, clinicians have a strong argument to increase the length of stay, if it is in the best interest of the patients, until the cost per discharge is starting to approach the TEFRA limit," he says. That may be particularly true in hospital-based rehab units, where an increase in the cost per discharge will draw more overhead from the medical center.
Because the BBA mandates that the budget for the prospective payment system (PPS) will be 98% of what HCFA spent under TEFRA, reimbursement initially could increase when the PPS goes into effect.
The AMRPA has used some of Fleming's calculations to try to persuade HCFA to base its PPS for rehab on a per discharge rate instead of the per diem rate it pays to long-term care facilities.
In correspondence with HCFA officials and members of the organization, Dale Eazell, PhD, chairman of the AMRPA board, pointed out that a one-day increase in average LOS would increase Medicare spending by $200 million. He also noted that, because HCFA will have a finite amount of money, an increase in LOS likely would produce cuts in per diem rates or imposition of LOS limits, which could lead to a potential reduction in access to services.
[Sam Fleming may be reached at (202) 872-1033.]
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