The results of this paper suggest SNF rehospitalizations have been growing in frequency, they are quite costly, and they vary considerably across regions of the US. Over the 2000-2006 period, the rate of SNF rehospitalization grew by 29%. By 2006, over one-fifth (23.5%) of all hospital discharges to a SNF returned to the hospital directly from SNF at a total cost of $4.34 billion per year to the Medicare program. In attempting to understand the substantial variation across regions, we observe a strong correlation between SNF rehospitalizations and physician visits per Medicare beneficiaries in the last two years of life. These results suggest that the propensity to hospitalize and utilize other Medicare services is often a local-area phenomenon.
Although certain SNF rehospitalizations are unavoidable, previous research has suggested that a high proportion occur for conditions that are preventable. Specifically, MedPAC [14
] has found that five conditions—congestive heart failure (CHF), respiratory infection, urinary tract infection (UTI), sepsis, and electrolyte imbalance—for which rehospitalization is potentially avoidable account for 78% of all 30-day SNF rehospitalizations. When we apply this rate to our aggregate cost figure, it suggests Medicare spent $3.39 billion (78% of $4.34 billion) in 2006 on potentially avoidable SNF rehospitalizations. Moreover, patient “churning” across SNFs and hospitals is known to introduce a number of negative health outcomes associated with medical errors as well as the stressors of the hospitalization experience known to cause delirium and functional decline.[15
From a policy perspective, the key is to provide SNFs with the resources and incentives to avoid these rehospitalizations. Towards this end, this paper helps to illustrate three important lessons for policymakers. First, because Medicare pays SNFs and hospitals on a fee-for-service basis, there is little incentive for either sector to worry about cost-shifting or inefficient resource use. As our paper suggests, the cost implications of patient churning across hospitals and SNFs are huge.
Second, not all SNF rehospitalizations relate to the same underlying policy factors. For example, we have made the distinction between rehospitalizations among individuals previously residing in the community relative to individuals with prior nursing home use. Rehospitalizations among both groups are frequent and costly, but SNF rehospitalizations among individuals who previously resided in the community will predominantly occur in hospital-based facilities or other SNFs specializing in Medicare-financed SNF care, whereas rehospitalizations among patients with prior nursing home use will often occur from facilities with high levels of Medicaid-financed care. In the latter case, policymakers may also want to consider the importance of state Medicaid policy “spillovers” to the Medicare post-acute SNF population.[7
] For example, the generosity of Medicaid payment rates and the presence of bed-hold policies have been shown to influence nursing home hospitalizations.[12
] Finally, given the strong correlation between SNF rehospitalizations and Medicare physician use in the last two years of life, our results suggest that rehospitalizations are likely to be substantially influenced by local area factors such as provider norms, practice patterns, bed availability, and presence and willingness to use hospice.
Policy reforms under consideration to address the high rate of SNF rehospitalizations include both system-wide and SNF-specific initiatives. In terms of broader reforms, the idea of bundling Medicare payment across providers around a hospital episode has gained considerable traction among Medicare policymakers.[3
] The advantage of this approach is that it encourages efficiency and care coordination within an episode to avoid unnecessary rehospitalizations and other wasteful spending.
In terms of efforts focused specifically at SNF rehospitalization, CMS began the three-state randomized Nursing Home Value-Based Purchasing (NHVBP) demonstration in July 2009. In conjunction with other quality dimensions (i.e., staffing, survey deficiencies and MDS-based quality measures), nursing homes with lower avoidable hospitalization rates will be rewarded with higher incentive-based payments. By law, the NHVBP must be budget neutral, with Medicare performance payments to nursing homes with lower hospitalization rates, for example, balanced against the savings to Medicare from reduced hospitalizations. From the 2006 state-specific data presented in , the high rate of 30-day SNF rehospitalization in the three participating states—Arizona (20.3%), New York (25.3%), and Wisconsin (18.8%)—suggests the real potential for the NHVBP to generate offsetting savings for the purposes of rewarding nursing homes.
Although payment reforms such as bundling and P4P have promise, skeptics have raised a range of potential issues including the increased incentives for selection of the most profitable patients, withholding of patient care, upcoding and fraud, along with the technical difficulties of case-mix adjustment and quality measurement and monitoring. In returning to our lessons highlighted above, the results presented in this paper also underscore two other considerations: 1) a Medicare-only solution will not address the potential for spillovers from other payer groups (e.g., long-stay Medicaid nursing home residents); and 2) local behavioral norms may be less responsive to payment incentives or, at least, may not be uniform.
Towards the first issue, the Medicare-only focus of payment reforms such as bundling may distort behavior in facilities caring for a sizeable proportion of long-stay Medicaid residents. As noted, we observed higher Medicare SNF rehospitalization rates among individuals with immediate prior nursing homes stays. In many of these nursing homes, the rehospitalization of Medicare SNF patients may relate closely to the generosity and method of Medicaid payment and the share of Medicaid residents within the nursing home. State Medicaid programs have little incentive to adopt policies that lower Medicare hospital and SNF spending. Bundling could be expanded to include Medicaid, but the coordination costs and the political capital needed to do so would be very high. In many regards, some type of Medicare-Medicaid capitated model might be the best approach towards aligning broader incentives across multiple payers and providers. However, very few providers and patients have been willing to “lock-in” to capitated models with the frail elderly and disabled due to the perceived risk. As such, their potential success on a broader scale may be limited.
Towards the second issue, variation across areas in SNF rehospitalizations suggests that payment reform might be one of several potential measures towards curbing inefficient service use. Interestingly, even after adjusting for case-mix and demographics, the variation across areas is not simply a function of the rate of potentially avoidable hospitalizations.[12
] That is, some of the variation in rehospitalizations across areas is also present across conditions which are not considered to be avoidable. This result speaks to the strong area norms such as practice styles and the supply of providers that extend beyond payment and other financial considerations. Although strong Medicare financial incentives may lessen the variation across areas, it may make sense to couple payment incentives with other system-wide interventions such as spending benchmarks, shared provider-patient decision making and the promotion of centers of medical excellence.[17
In summary, there is need for demonstrations of these policy models, because each has considerable technical and practical implementation challenges that could undermine their effectiveness. In designing these demonstrations, we encourage policymakers to consider the heterogeneity of Medicare rehospitalizations and the significant role of local provider norms. Although several Medicare reforms currently under discussion move beyond particular providers to consider the “system,” our findings suggest that a true system-level reform must extend beyond Medicare and must consider more than simply financial incentives.