Medicare Puts The Squeeze
On Inpatient Rehab

July 16, 2007
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Medicare is taking two tacks to wring knee and hip replacement patients out of the city’s two major inpatient rehabilitation facilities: limiting their numbers and auditing records long after the patients are discharged.

“It’s amazing what Medicare is putting us through to justify our existence,” said Joann Baruta Mapes, director of physical medicine and rehabilitation at Metro Health Hospital, who sat through an eight-hour session with an administrative law judge in Cleveland to review 22 audited cases.

Grand Rapids’ only freestanding acute care inpatient rehabilitation facility, Mary Free Bed Rehabilitation Hospital, 235 Wealthy St. SE, has seen a 26 percent drop in the number of patients over two years as it struggles to meet Medicare rules, said Randall DeNeff, vice president of finance. The annual occupancy rate at the 80-bed facility has gone from 66 percent to 51 percent.

Nationwide, joint replacements fell from 24.6 percent of patients at inpatient rehabilitation facilities in 2004 to 18.4 percent in 2006, the federal Medicare Payment Advisory Commission reported in March.

Some patients seeking treatment at Mary Free Bed are being turned away because their presence would threaten the hospital’s entire Medicare allotment, which amounts to about one-third of revenue, DeNeff said. Those patients may go to rehab programs at skilled nursing facilities or to outpatient programs, or they may go home with visits from a home health care company.

“We will continue serving a smaller number of patients in those excluded categories,” added Bill Sonday, director of inpatient therapy programs at Mary Free Bed. “It will just be much smaller numbers.”

The Medicare rule requires that 75 percent of patients in an inpatient rehabilitation facility fall into one of 13 diagnostic categories. Enforcement of the rule is being phased in, DeNeff said, so that Mary Free Bed must meet a 65 percent threshold now and 75 percent in 2009. Currently, 69 percent of Mary Free Bed patients fall into the 13 categories, DeNeff said.

Should the hospital violate the percentage rule, all of its Medicare funding, about $10 million, would be at risk, he said. The hospital’s operating margin is 3.4 percent on net operating revenue of $31 million, he said.

“The rule was developed way back in 1983 by the federal government, but never really enforced until about two years ago,” DeNeff said. “The orthopedic area is an area where a lot of rehab units built a business. Medicare will recognize and pay for them, but they do not qualify as one of the 13 conditions.”

Metro Health’s rehab unit has shrunk from 29 to 19 beds, and may get even smaller with this fall’s move from 1919 Boston St. SE in Grand Rapids to the new hospital in Wyoming, Mapes said.

“That is largely due to the impact of the 75 percent rule,” she said. “When we move to the new hospital, we’ll probably be decreasing again, but I’m not sure to what number.”

Mapes said the department has seen a significant drop in referrals from Spectrum Health orthopedists.

“We expanded into other diagnoses,” Mapes said. “We’re building on our stroke referrals, and I feel we are becoming more expert in neurological patients that may require rehab.”

Mary Free Bed has put some changes into place, DeNeff said. “We put in real-time reporting systems to allow us to look at, on a real-time basis, what our percentage is,” he said. “I could go in the system and look at a report and see we are at X percent. We can manage our admissions to meet that rule.”

The hospital also has had to adjust staffing, he said. “Just yesterday we talked about a couple of positions, and we did not replace those positions. Fortunately, we have gotten some pretty significant increases with some of our contractor payers. Medicare adjusted some formulas for low-income patients.”

The Centers for Medicare & Medicaid Services announced in May that Medicare expects to pay $6.3 billion to inpatient rehabilitation facilities nationwide in fiscal year 2008: $150 million more than in 2007. The 3.3 percent payment hike would be shared by 1,234 facilities across the country. 

 “That’s going to carry us through for a little bit there, but if things don’t improve in one or two years, we’ll have to do some restructuring,” DeNeff said. “We hope to do that through attrition.”

Sonday said Medicare’s money-pinching ways are narrowing choices for hip and knee replacement patients.

“Really, the access issue is the main problem here,” Sonday said. “Some of these patients probably don’t realize you can come to an inpatient program for five or six days, as opposed to several weeks in a skilled nursing facility.”

In the meantime, United Government Services, Medicare’s Milwaukee-based intermediary covering the Grand Rapids area, launched a series of audits at Mary Free Bed and Metro Health.

“It’s so sad. This is a physician who’s making decisions of what’s best for patients, and Medicare is denying, denying, denying. They’re debating the physician’s choice,” Mapes said.

Starting in 2005, Metro Health faced audits on 22 cases, taking them to three levels of appeal. Nineteen cases were overturned by an administrative law judge in Cleveland, Mapes said.

Mary Free Bed went through a similar process on nearly 100 cases, DeNeff said, only to have each denial overturned. Mary Free Bed has set aside nearly $600,000 to cover the possibility that cases now in the audit process, which can take about 18 months, could be rejected for Medicare payment.

Both said that each case requires a mountain of paperwork and hours of staff time. Mapes said she estimated it takes five staff members 23 hours per case to pull together the documentation demanded by each audit.

“Basically, they are denying everything for stroke and joint replacements,” DeNeff said. “This has been going on for almost well over a year. We see a patient being treated for stroke; the bill goes into the Medicare intermediary; they deny it. There is a series of three or four levels of appeals you have to get through to get the bill paid, and we end up having to go to an administrative law judge.

“We probably have had close to 100 cases that have been denied, and 100 percent have been overturned. We’ve spent a lot of staff time and incurred some legal costs.”

Jill Becher, spokeswoman for United Government Services, said it’s the agency’s responsibility to conduct such reviews “to help reduce waste, abuse and mismanagement, and promote economy and efficiency.”

“Using claims data, we select for medical review providers whose patterns of utilization are significantly different than that of their peers,” Becher noted. “Medical records are then reviewed to ensure compliance with Medicare regulations.

“There is an appeals process for any of these audits. Despite the fact that the findings from previous reviews may have been appealed and overturned, we continue to audit these facilities to ensure compliance with Medicare guidelines.”

While inpatient rehabilitation facilities are working their business models through these changes, skilled nursing facilities, mostly nursing homes, are beefing up their rehab offerings to serve the patients that Mary Free Bed and Metro Health can’t under the 75 percent rule. For example, Porter Hills Rehab has separated rooms for rehab patients from the long-term care area and has remodeled rooms with new paint, carpet, furniture and televisions.

At the new TenderCare in Wyoming, the Sault Ste. Marie-based nursing home company’s first entry in the Grand Rapids area, each room has wireless Internet access.

“Patients that used to come to acute rehab facilities like Mary Free Bed are now going elsewhere,” DeNeff said. “They’re going to skilled nursing facilities, outpatient programs, and sometimes being sent home with home health care.”  

The 75 Percent Rule
Under Medicare rules, this year 65 percent of Mary Free Bed Rehabilitation Hospital’s patients must have one of these 13 diagnoses. Starting in 2009, the threshold moves to 75 percent:
Stroke
Spinal cord injury
Congenital deformity
Amputation
Major multiple trauma
Fracture of femur
Brain injury
Neurological disorder
Burns
Active polyarticular rheumatoid arthritis
Psoratic arthritis or sero-negative arthroplasties
Systemic vasculitities, with joint inflammation
Osteoarthritis in two or more major joints
Hip or knee replacement if: both sides done at one time; extreme obesity with a body mass index of at least 50; or age 85 or older.
Source: Bill Sonday, director of inpatient therapy programs at Mary Free Bed Rehabilitation HospitalHQ

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