Statement by
Herb Kuhn, Director
Center for Medicare Management
Centers for Medicare and Medicaid Services
U.S. Department of Health and Human Services
Standardized Payment and Patient Assessments in Post-Acute Care
Subcommittee on Health of the House Committee on Ways and Means

June 16, 2005

Madam Chairman Johnson, Congressman Stark, distinguished members of the subcommittee, thank you for inviting me here today to discuss ways to improve coordination in the payment and clinical assessment of post-acute care. A more beneficiary-centered system of post-acute care services has the potential to improve quality of care, access to care, and continuity of care in a cost efficient way.

CMS is committed to ensuring that our administrative actions provide maximum support to further steps toward higher quality post-acute care and we have numerous initiatives underway to further this goal. Medicare pays for rehabilitation and other post-acute care services in a variety of settings, including skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), and home health. Adopting techniques that can provide greater uniformity in how patients are assessed and quality is measured can support efforts to pay more consistently for services across different sites of post-acute care while eliminating administrative barriers and incentives that impede high quality care. CMS is actively exploring such approaches as it works to improve its payment systems under Medicare while supporting quality and access.

CMS began transitioning to the various post-acute care prospective payment systems (PPSs) in accordance with the Balanced Budget Act of 1997. The transition began with skilled nursing facilities in July of 1998, followed by rural swing beds SNFs in July of 2000, home health agencies (HHAs) in October of 2000, IRFs in January of 2002, LTCHs in October of 2002, and finally psychiatric hospitals in January of 2004. The new administrative pricing models have generated substantial improvements over the preexisting cost-based systems. Further, the transition from cost based reimbursement to PPS in post-acute care was a major milestone for the program that resulted in improved cost containment while more directly linking payments to the care needs of each beneficiary. However, since each of these systems was developed independently, it is time to consider ways of improving coordination of payment and clinical assessment across care settings to provide a more seamless system of post-acute care services.

To date, Medicare’s benefits and policies have focused on phases of a patient’s illness as defined by a specific site of service, rather than on the entire post-acute care episode. Thus, payments across settings may differ considerably even though the clinical characteristics of the patient and the services delivered may be very similar. As the differentiation among provider types becomes less pronounced, it may now be appropriate to explore more coordinated approaches to the payment and delivery of post-acute care services that focus on the overall post-acute episode. Initially such approaches would focus on establishing more consistent payments across different sites of service where services provided to patients and associated resource requirements are similar. Ultimately, we should focus our efforts on developing a system that provides payment and assures quality for the overall post-acute episode, rather than each individual component of the continuum of care. In order to accomplish these objectives, we need to begin to collect and compare consistent clinical data across various sites of service and use these data as part of our research efforts to build the components of such a system.

In the long run, our ability to compare clinical data across care settings is one of the benefits of standardized electronic health records (EHRs) and other steps to promote continuity of care across all settings. It is also important to recognize the complexity of the effort, not only in developing an integrated assessment tool that is designed using health information standards, but in examining the various provider-focused prospective payment methodologies and considering payment approaches that are based on patient characteristics and outcomes.

MedPAC has recently taken a preliminary look at the challenges in improving the coordination of our post-acute care payment methods, and suggested that it may be appropriate to explore additional options for reimbursing post-acute care services. We agree that CMS, in conjunction with MedPAC and other stakeholders, should consider a full range of options in analyzing our post-acute care payment methods.

Post-Acute Care Settings
Post-acute care services are offered in SNFs, in IRFs, in the home by HHAs, and in LTCHs. Each of these settings has its own payment system and method for evaluating patient functioning. Each of the current payments systems is described below.

SNF Per Diem Payments based on Resource Utilization Groups
SNFs provide short-term skilled nursing and rehabilitative care to people with Medicare who require such services on a daily basis in an inpatient setting after a medically necessary hospital stay lasting at least three days. SNFs receive per diem payments for each admission, which are case-mix adjusted using a resident classification system, Resource Utilization Groups (RUG) III, based on data from resident assessments and relative weights developed from staff time data. SNFs use the MDS 2.0 instrument to assess care planning as part of the federally mandated process for clinical assessment of all residents in Medicare or Medicaid certified nursing homes. This process provides a comprehensive assessment of each resident's functional capabilities and helps nursing home staff identify health problems. More specifically, patients are classified into RUG-III groups based on need for therapy (i.e., physical, occupational, or speech therapy), special treatments (e.g., tube feeding), and functional status (e.g., ability to feed self and use the toilet). Patient status is reviewed periodically to update the RUG-III grouping.

An interdisciplinary team completes the MDS via several sources, such as communicating with and observing the resident, reviewing the medical record, and communicating with family & staff. The assessment for a SNF patient is completed at a few intervals of his/her stay, on days 5, 14, 30, 60, & 90 day, although there are times when an off-cycle assessment may need to be completed. The 5-day assessment covers payment for days 1 - 14; 14-day for days 15 - 30; etc.

CMS requires that once the MDS is completed, it be submitted electronically to the State database. When the assessment is required for SNF payment, a Resource Utilization Group (RUG) is assigned to the assessment. The RUG assignment is based on specific items within the MDS. The RUG categories are based on time study data, which measured staff time for medical conditions, disease processes and treatment interventions. A provider may submit a claim to its FI once the assessment is submitted and accepted into the State database.

Home Health 60-Day Episode Payments Based on National Rate
To qualify for Medicare home health visits, people with Medicare must be under the care of a physician; have an intermittent need for skilled nursing care, or need physical therapy, speech therapy; or have a continuing need for occupational therapy; be homebound; and receive home health services from a Medicare approved home health agency. Under the PPS, Medicare pays higher rates to HHAs to care for those beneficiaries with greater needs. Home health is measured in 60-day units called episodes, and the amount of payment for an episode is the national base rate, adjusted for case-mix and for prices in the area where the patient resides. The base payment covers the costs of visits, to include the costs of routine and non-routine medical supplies, which is based upon a model with 1998 costs and updated annually using the home health market basket.

Payment rates are based on relevant data from patient assessments using the Outcome and Assessment Information Set (OASIS). The OASIS is a group of data elements that represent core items of a comprehensive assessment for an adult home care patient and form the basis for measuring patient outcomes used by CMS to determine appropriate case-mix adjustment for Medicare payment purposes and by individual agencies for outcome based quality improvement, or OBQI. Medicare Conditions of Participation (CoPs) for Home Health Agencies (HHAs) require that information about a patient’s health status be collected by HHA staff using the OASIS assessment instrument at the start of care, at discharge or transfer, at follow up (60 day re-certification) and at resumption of care.

The purpose of case-mix adjustment, like the DRG system for hospitals, is to adjust payment based on the different levels of resources used for a unit of service. The home health case mix methodology uses a combination of scores from 23 OASIS items and an additional data element measuring the receipt of therapy services that result in one of 80 case mix weights or home health resource groups, which in turn determine the payment for the episode of care. These data elements are organized into three dimensions to capture clinical severity factors, functional severity factors, and service utilization factors influencing case-mix.

Inpatient Rehabilitation Facility (IRF) Per Discharge Payments Based on Case-Mix Groups
For classification as an IRF, a percentage of the IRF’s total inpatient population during the compliance review period that is associated with an IRF’s cost reporting period must match one or more of thirteen specific medical conditions. Payments under the IRF PPS are made on a per discharge basis. Under this system, payment rates are based on case-mix groups (CMGs) that reflect the clinical characteristics of the patient and the anticipated resources that will be needed for treatment.

IRFs use the IRF Patient Assessment Instrument (IRF-PAI) to assess the functional performance and health status of the patient and changes in the patient’s functional performance status from admission to discharge. Under IRF PPS, a person with Medicare must be assessed using the IRF-patient assessment instrument (PAI). The IRF-PAI is a three page form that captures demographic, medical, and functional performance data regarding the patient. Using the IRF-PAI, an IRF’s clinicians assess the inpatient at both admission and discharge, and the combined data is electronically transmitted to CMS only once after the patient is discharged. Typically the admission assessment is performed during the first three calendar days of the patient's stay. The admission data that is recorded by the IRF's staff on the electronic version of the IRF-PAI results in the patient being automatically classified into one of the payment groups that are referred to as case-mix groups (CMGs). The IRF then records the CMG code on the Medicare claim. As the IRF's Medicare claim is processed by the fiscal intermediary both case level and facility level adjustments are automatically applied to the initial unadjusted CMG payment rate resulting in the adjusted payment amount that the IRF will receive for care furnished to the inpatient.

Long-Term Care Hospital (LTCH) Per Discharge Payments based on Diagnosis Related Groups.
Long-term care hospitals have an average Medicare inpatient length of stay greater than 25 days. These hospitals typically provide extended medical and rehabilitative care for patients who are clinically complex and may suffer from multiple acute or chronic conditions. Services may include comprehensive rehabilitation, respiratory therapy, cancer treatment, head trauma treatment, and pain management. The PPS for LTCHs classifies patients into distinct diagnostic groups based on clinical characteristics and expected resource needs (LTC-Diagnosis Related Groups (DRGs)), which are based on the existing CMS DRGs used under the acute hospital inpatient PPS that have been weighted to reflect the resources required to treat the medically complex patients treated at LTCHs.

Although LTCHs do not have a standard patient assessment tool, following a rigorous analysis of existing research on the universe of LTCHs and their typical patients, CMS has a contractor collecting information from several sources that could be used to develop patient-level criteria for LTCHs. There are three main types of data sources for this facet of the project: Claims analysis, Quality Improvement Organization interviews, and site visits/provider discussions. CMS expects to receive the final report on this research project from our contractor by the end of FY 2005.

CMS is taking Action toward Change
CMS has several initiatives in the planning and implementation phases to further our goals of developing a more consistent payment and assessment structure in post-acute care. More specifically, we are working with our stakeholders to study existing patient assessment instruments and potential for the future. We are also working with the National Quality Forum (NQF) to set up a technical expert group to look at the development of a functional status framework to identify information we should be collecting on aspects of relevant functional status. Furthermore, we are mapping the MDS to Consolidated Health Information (CHI) to ensure the MDS conforms to CHI standards. In addition, CMS has twice expanded the post-acute transfer policy under which it pays the acute hospital transferring a patient to a post-acute setting under a per-diem payment, rather than the full DRG payment. In the most recently-proposed inpatient PPS Notice of Proposed Rulemaking, CMS proposed to expand the policy even further. Finally, we are currently evaluating CMS research priorities and anticipate funding future research to develop payment systems using clinical data collected across post-acute care settings.

CMS is Working in Coordination with our Stakeholders
Beginning in 2001, CMS has been working collaboratively on an investigatory effort funded by Assistant Secretary for Planning and Evaluation (ASPE) to learn more about the current and potential future design of our patient assessment tools. More specifically, this effort was designed to hold initial meetings with stakeholder groups, other Federal agencies, and researchers to identify issues with current assessment systems, investigate future needs, and to elicit comments on what is perceived as the government role in the collection and reporting of assessment data. We met with over 200 different stakeholders across the continuum of care as well as the Agency for Healthcare Research and Quality, the Department of Veterans Affairs, and MedPAC staff.

CMS is Working to Identify Common Measures and Process for the Clinical Assessment of Patients
A key to developing more consistent payment and quality assurance methodologies across different sites of post-acute care is the use of common measures and processes for the clinical assessment of patients. CMS and the Department of Health and Human Services as a whole are committed to the development of standardized health information terminology (e.g. Systematized Nomenclature of Medicine, Logical Observation Identifiers Names and Codes- Clinical Terms (SNOMED-CT) to reconcile disparate assessment items collected by the different health care providers in their particular settings. In addition, CMS has asked the National Quality Forum (NQF) to convene a group of technical experts to identify a standard framework for measuring functional status that could be used in CMS instruments and programs. This technical group could create a subset of items common to payment (and quality for continuity of care measures) and allow flexibility for the other items specific to a particular setting. Factors such as diagnosis, functional status, activities of daily living (ADLs), prior hospitalizations, and discharge to community are just a few elements that could serve as a common set of information collected at admission and discharge to help structure payment and quality programs. Once these changes are made, CMS could test the new instrument, and begin collecting data for use in developing more advanced methods for payment and quality assurance in post-acute care. In the short term, the potential exists to recalibrate existing SNF, IRF, LTCH, and home health payment systems based on the standardized data elements, and use the data to measure resources and establish payment levels more consistently across these sites of care.

CMS is Collaborating with ASPE to MAP MDS to CHI Standards
In October of 2004, CMS and ASPE contracted work to begin mapping of MDS items to the adopted medical terminologies and standards recommended by the CHI initiative. This work ensures that the future version of the MDS conforms to CHI standards thus supporting the adoption and promotion of interoperable electronic health information systems.

CMS’ Expanded Transfer Policy Helps Ensure Accurate Payments
Due to concern that hospitals may be discharging patients as quickly as possible to post-acute settings, thus substituting post-acute care for the end of the hospital stay, CMS has proposed expanding the post-acute transfer provision to help ensure that acute care hospitals receive accurate payments for cases that those hospitals transfer to post-acute care. The provision would add additional DRGs to the existing policy that pays acute hospitals that transfer patients to a hospital or unit excluded from the IPPS, skilled nursing facility, or home health agency after a shorter than average length of stay on a per-diem basis, rather than the full DRG payment. More specifically, each transferring hospital is paid a per diem rate for each day of the stay, up to the full DRG payment that would have been made if the patient had been discharged without being transferred.

CMS is working to Ensure that People with Medicare are Treated in the Most Appropriate Setting
CMS covers rehabilitation and post-acute care in a variety of settings. CMS is committed to ensuring that beneficiaries have access to high quality rehabilitation services in these settings at an appropriate cost to taxpayers. Generally inpatient rehabilitation facility payments are much more generous than those paid to acute care hospitals; therefore it is important to ensure that the majority of patients treated by inpatient rehabilitation facilities truly require the higher level of care available at such a facility.

In February of 2005 CMS in collaboration with the National Institutes of Health, Center for Medical Rehabilitation sponsored a panel meeting to review available research on the types of patients appropriate for inpatient rehabilitation care and provide insight into where additional research may be needed.

Significant Variations across Post-Acute Care Settings Exist
It could be that the current variation in payments across settings creates incentives that inappropriately affect where providers send their patients. We should investigate a more coordinated approach to payment and delivery of post-acute care services that focuses on the overall post-acute care episode or attempts to pay more consistently across different sites of care. Payments for particular post-acute care services should be more consistent regardless of the setting in which the services are furnished. An approach that relies on a single comprehensive assessment of a patient’s needs and clinical characteristics could ensure that payments are at levels consistent with high quality, cost effective care regardless of setting.

The following case example illustrates how the payments under Medicare for levels of rehabilitative care received in the various settings may differ for a patient that has a primary diagnosis of a lower extremity joint replacement, which is a common patient condition.

A 74-year-old woman has experienced a right total knee arthroplasty (TKA), with a wound infection, fever, and high white blood cell count, noted on her second postoperative day. A work-up indicates the existence of staphylococcus aureus septicemia. The patient lacks full extension and has only 65 degrees of flexion on her third post-operative day. The chart below demonstrates how the different post-acute care settings provide different classifications, lengths of stay, and payments.



Length of Stay

Payment (2003 rates)


Case-mix group 804 (lower extremity joint replacement with some functional capabilities)

14 days

The existence of staphylococcus aureus septicemia, a comorbid condition (ICD–9–CM code 038.11), would place this patient into the tier 2 payment category.


Either the very high (RVB) or ultra high (RUB) rehabilitation group

14 days

$4,446.82 for RVB and 14 days, $6,352.60 for RUB and 14 days


Patient group 238

14 days

$17,671.22 for 14 days or

Home Health

High/High/Moderate group

60-day episode*

$5,165.26 for services delivered for a 60-day episode

*Payment is always based on 60-day episode unless low utilization or other adjustment applies.

In addition to the above-mentioned options, the patient could also receive outpatient therapy or remain in the original surgical acute care hospital, both of which would have different classifications, lengths of treatment, and payments than those mentioned in the chart. This illustrative example shows the extent to which assessment and payment across care settings varies substantially when a patient presents with the same condition in each setting.

Benefits of Standardizing Payment Systems
An integrated payment system for all post-acute care services could encourage a focus on actual patient need and eliminate the financial incentive for providers to transfer patients from one post-acute care setting to another based on financial considerations. We also believe an integrated post-acute care strategy could help to address the growth in post-acute care spending. We realize that any site-neutral, beneficiary-centered system of paying for post-acute care services will need to allow for certain variations in costs, such as room and board among different types of providers. However, by providing more consistent payments for the same treatment in different sites, the payment structure should not influence clinical decisions about the appropriate site of care.

As mentioned above, MedPAC has recently commented on the challenges we face in coordinating our post-acute care payment methods and suggested that it may be appropriate to explore additional options for reimbursing post-acute care services. We agree that CMS, in conjunction with MedPAC and other stakeholders, should consider a full range of options in analyzing our post-acute care payment methods. In fact, we have recently issued proposed regulations for SNFs and IRFs in which we discuss the long range possibilities for an integrated post-acute payment structure. While we have not made any formal proposals, we have solicited comment on potential models from the industry and other stakeholders. This is an action step that we have taken to advance the issue and initiate a dialogue with our stakeholders. In addition, we want to encourage incremental changes that will help us build toward longer-term objectives. An obvious problem in establishing an integrated post-acute PPS is that the research, like the payment systems, has been specific to each type of provider. Much work remains to be done to develop a case mix adjusted payment system that spans the various provider types.

In addition, ASPE is funding a study examining the relative cost-effectiveness of post-acute care services provided to Medicare beneficiaries who have suffered a stroke. This work as well as work that has been funded by National Institute on Disability & Rehabilitation Research (NIDRR) in the Department of Education and the private sector will provide policy makers with needed information to develop a more patient-focused payment policy.

CMS has existing models of seamless care that may serve as good examples for post-acute care payment and assessment systems. For example, through Medicare Advantage (MA), CMS makes up-front capitated payments to MA plans to provide coordinated beneficiary-focused care. The plans then determine the best care setting for the person with Medicare based on his or her health care needs. As we begin to make incremental changes toward increased standardization and a more seamless system of post-acute care and as we review public comments, CMS will consider conducting new demonstrations to evaluate the effectiveness of different approaches.

Benefits of a Standard Patient Assessment Tool
As CMS considers modifications to standardize payments in post-acute care settings, it is essential to recognize the relationship between payment structure and clinical data collected through patient assessment instruments. By examining the provider-focused prospective payment methodologies and considering patient-focused payment approaches while developing an integrated assessment tool, CMS is taking a necessary first step toward increased system integration.

Increased Standardization Improves Continuity and Quality of Care
The various assessment instruments used by Medicare providers differ because even if providers are collecting similar information each instrument collects and stores the patient’s health and functional status information in different data formats, which are often not compatible (as demonstrated in the chart discussed earlier). Because of this variation, care may be disrupted when a Medicare patient moves across settings.

Increased interoperability of data standards would allow providers to share existing patient information across settings without the unnecessary burden of data re-entry for Medicare patients already receiving care in other care settings. It also may reduce the incidence of potentially avoidable re-hospitalizations and other negative effects on quality of care that could occur when patients are transferred between different facility types.

CMS has committed to a variety of activities to develop more consistent payment and assessment systems because we realize the benefit of having a more comprehensive system where the incentives are to place the patient in the most appropriate post-acute care setting rather than the setting where the payment is advantageous. Standardized payment and patient assessment data elements would make it possible to evaluate health and functional status across the range of post-acute care settings and bring us closer to establishing a single post-acute care payment system, with uniform payments for clinically similar admissions and a consistent set of incentives. Greater integration and coordination in Medicare’s post-acute care payment system could enhance our focus on patient need while at the same time reducing unnecessary transfers between settings. Ultimately, an integrated patient-focused model could allow us to gain control of the rapid growth in post-acute care.

Thank you, Madam Chairman, for the opportunity to speak to you today about the potential for increased payment and patient assessment standardization in the Medicare program. I would be happy to answer any questions you may have.

Last Revised: June 16, 2005