Medicare Payment Issues Affecting Inpatient Rehabilitation Facilities (IRFs)

Publication Date: January 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

Medicare spending on post-acute care, either those services provided in a facility after an acute hospitalization or home health services provided to eligible beneficiaries in the community, has elicited increasing attention as program spending on these services has grown. Beneficiaries can receive post-acute care in multiple settings, elevating the importance of identifying the most appropriate, cost-effective setting to provide necessary care. Recent implementation of prospective payment systems for the different settings has amplified concerns that post-acute providers are making decisions about beneficiaries' rehabilitative care in response to financial incentives rather than deciding on the basis of which setting is the most appropriate for the care needs of the patient.

Inpatient rehabilitation facilities (IRFs) are one post-acute provider participating in Medicare. IRFs, either freestanding hospitals or distinct units of hospitals, are exempt from Medicare's payment system used to pay acute care hospitals. The majority of IRFs participating in Medicare are distinct parts units of acute care hospitals. Medicare is the largest single payer for IRF services. Starting in 2002, Medicare began implementing a prospective payment system specifically for IRFs (IRF-PPS). Much of this report describes the IRF payment system and concludes with an FY2006 payment calculation.

Recent administrative actions by the Centers for Medicare and Medicaid Services (CMS) to enforce the newly constituted "75% rule" have been causing a certain amount of consternation among the provider community. The 75% rule specifies criteria, including qualifying medical conditions and compliance thresholds (the percentage of patients treated that have those conditions), that a facility must meet in order to be paid as an IRF and not as a lower-paid general hospital. Pending local coverage determinations (LCDs), the medical review policies established by Medicare contractors regarding IRF services that will be paid for by Medicare in their respective areas, have elicited objections from providers and their advocates as well.

Over objections from the Administration, the Consolidated Omnibus Appropriations Act for 2005 (P.L. 108-447) delayed implementation of the IRF rule. The Secretary of Health and Human Services (HHS) was required to review a pending study by the Government Accountability Office (GAO) before the 75% rule could be enforced for most IRFs. The GAO report was issued on April 22, 2005. On June 21, 2005, CMS announced that the compliance thresholds will be implemented as planned. Legislation that would hold the compliance threshold at 50% for two years, among other provisions, has been introduced in the 109th Congress. The twoyear 50% compliance threshold was included in the Deficit Reduction Omnibus Reconciliation Act of 2005 (S. 1932), passed by the Senate on November 3, 2005. The conference report included a two-year 60% threshold that would postpone enforcement of a 75% threshold at 75% from July 1, 2007 until July 1, 2008.

This report will be updated as events warrant.