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those costs must be considered inflationary.

Much of the dramatic

increase in costs for all health services over the last ten years can be attributed to the use of retrospective cost reimbursement. When costs are retrospectively determined, cannot determine at any moment what they will be reimbursed and hence link the level of care being provided with the reimbursement they will receive. A nursing home that contains costs and increases efficiency is penalized by having its reimbursement level reduced by the size of the saving. Cost reductions only reduce income.

The use of a prospective payment system for nursing homes is not a new, untried idea. The virtues of prospective reimbursement are known. Over two-thirds of the state Medicaid programs have successfully employed prospective payment systems for nursing homes for several years.

The prospective method must provide incentives for efficient operation in order to restrain the growth in costs. Providers able to keep their costs below a pre-determined rate or a target level would retain the savings. Conversely, providers unable to keep their costs below the rate should be responsible for incurring the loss. As in any viable business, an opportunity for adequate return on investment and fair recognition of property costs are needed for renovation, upkeep, and development. Additionally, the system should reduce administrative "red tape",


unnecessary paperwork, and be easy to administer, in

contrast to the current system which is complicated and burdensome

for the provider and the program.

SNF Patient Cost Sharing

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The present cost sharing for SNF patients is excessive, especially relative to other Medicare services. Currently a SNF patient, after already have paid the hospital deductible and possibly coinsurance, must pay $38 per day from the 21st day to the maximum 100th day. In many areas of the country, a $38 fee approaches 100 percent of the facility's reimbursement. In contrast, home health recipients pay nothing and hospital patients pay nothing beyond the deductible until the 61st day. An erosion of the SNF benefit has occurred because it is linked to the faster rising hospital costs. The SNF coinsurance is fixed at 12.5 percent of the hospital deductible.


The President, apparently recognizing the unfairness of present SNF cost sharing, proposes the rate be reduced to 5 percent of the hospital deductible, that is $15.20 in 1983. AHCA supports the President's intention to reduce the SNF patient's cost sharing. However, when a SNF prospective payment is implemented the SNF coinsurance should be set at a percentage of the SNF's payment rate, rather than perpetuate the artificial linkage to inflationary hospital costs.

Skilled Nursing Care Definition

One of the major ways for Medicare to provide more economical and appropriate services is to allow SNF coverage for a broader range of nursing home services. Medicare narrowly limits coverage to patients who require daily skilled nursing care or have rehabilitation potential. The Medicare program has not adapted its Coverage to take better advantage of the services which can be provided in today's long term health care facilities.

Medicare provides no coverage, for example, of the most utilized nursing home service intermediate care. Medicaid


is a heavy user of ICF services, which are less intensive than skilled nursing. Although not one of the mandatory Medicaid services, ICF services are utilized by each state program. It is expected that Medicare will finally begin to take advantage of ICFs as a qualified care site under the new hospice coverage.

AHCA supports HCFA having the authority and encouragement to develop cost-effective and appropriate applications of ICF and other SNF services. Medicare should learn from Medicaid and close the service gap between its restrictive SNF definition and home health. An example of a cost-effective opportunity utilizing SNFs and ICFs for Medicare patients receiving chemotherapy or radiation therapy to stay in non-hospital settings. Skilled nursing and intermediate care facilities would be well suited

to handle the nursing and convalescent needs of such cancer


Prior Hospitalization Requirement

Last year Congress gave HHS the direction to basically eliminate, in whole or in part, the minimum three day prior hospitalization requirement for Medicare SNF coverage whenever and however cost-effective.

We urge aggressive implementation

of this provision. The change would provide Medicare beneficiaries with greater flexibility in their long term care coverage and result in lowering overall costs for both the patient and the Medicare program.

In light of HCFA's steadfast position that repeal in whole of the requirement would increase cost, the requirement should be repealed in part. Specific types of patient situations can be identified for which the prior hospital requirement is not cost-effective nor necessary to control inappropriate utilization. Examples of patient situations include the following: beneficiaries who need skilled nursing services for a terminal illness; beneficiaries receiving Medicare home health services who develop an intensified nursing need; beneficiaries who are non-Medicare nusing home residents who need further care at the more intensive skilled nursing service level; and beneficiaries who have not ended a "spell of illness" either because 60 days have not lapsed

since their hospital or SNF care or the overly broad HHS interpretation of when these inpatient services are deemed to have


AHCA believes that the requirement can be completely eliminated,


even under the statute's cost-effectiveness criterion. most thorough, objective examination to date on this issue is a three-year HCFA demonstration project in Oregon and Massachusetts and evaluation report by Abt Associates, Inc. The record shows likely Medicare savings would result from elimination of the We know of no other public or private health plan


which finds value in such a requirement.

The current restriction is arbitrary, unnecessary and burdensome. The removal of the requirement would recognize the legitimate needs of beneficiaries who require only skilled nursing services. There are also those who "game" the program by arranging for unnecessary (and costly) hospital stays in order to become eligible for Medicare SNF benefits. In addition, there are individuals receiving hospital care who would benefit as much from SNF care but who are not transferred because of the paperwork (e.g., transfer of medical records, treatment plan) and the financial disincentives (e.g., no cost sharing is required after the hospital deductible until the 61st day).

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