Perspective: The Impact Of IMPACT

October 28, 2014

Anne Montgomery

Stock photo of a careworker helping an elderly woman descend a stairway.

The world of Medicare post-acute care (PAC), which as a general rule covers the 90-day period following hospitalization, is set to change. Over the next 7 years, the Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT) law rolls out a series of reforms that ultimately will rewrite payments in this sector, which accounts for about 23% of all Medicare spending. By 2022, payment rates will be tied to “individual characteristics instead of the setting where the patient is treated,” according to a summary. Doing so requires that individual characteristics come to be documented in a standard way, and the act requires Medicare to institute uniform assessments and collect them.

The Act was quietly signed into law on October 6, 2014. In contrast with many Capitol Hill debates during the last 5 years, Congress approved the proposals by unanimous consent in the Senate and under a procedure known as “suspension of the rules” in the House of Representatives, which requires a two-thirds majority. The statute directly affects four different PAC service delivery settings: skilled nursing facilities (SNF), home health agencies, inpatient rehabilitation facilities (IRF), and long-term care hospitals (LTCH).

PAC providers have been the focus of increasing scrutiny by the Medicare Payment Advisory Commission (MedPAC) analysis in recent years. The Commission, which advises Congress on reimbursement policy, has repeatedly pointed out that Medicare margins in PAC sectors have been high and that utilization has been growing rapidly. In the case of SNFs, MedPAC’s June 2014 Data Book observes that in 2011, “the average Medicare margin for freestanding SNFs was 21.2%.” The book notes that margins have since declined somewhat; nonetheless, “the 2012 Medicare margin is the 13th year of Medicare margins above 10%.”

In the home health sector, MedPAC observes, “Home health care has risen rapidly under the [prospective payment system (PPS)]. Spending rose by about 10% a year between 2001 and 2009.” While growth has now slowed due to a decline in the base rate for home health and the number of episodes has dropped slightly, overall “spending in 2012 was more than double the spending for 2001.” Interestingly, MedPAC also notes, “The rise in the average number of episodes per beneficiary coincides with a relative shift away from using home health care as a PAC service,” and therefore a growing percentage of home health episodes are not preceded by a hospitalization or PAC institutional stay.

For IRFs, MedPAC data show that Medicare margins dropped by more than 8% through 2009 but have since risen as patient volume has increased. “In most years from 2004 through 2009, costs per case grew more than payments, although payments per case have grown more than costs each year since 2010,” MedPAC states. As a result, between 2011 and 2012, Medicare margins increased from 9.8% to 11.1%, which is an increase of 13%. By comparison, “since 2007, LTCHs have held cost growth below the rate of market basket increases,” MedPAC reports. “Between 2009 and 2011, the average cost per case increased less than 1.0% per year. Between 2011 and 2012, the average cost per case increased 1.6%.”

In view of these complex and changing dynamics, and under pressure to do more to rein in health spending, IMPACT proposes to streamline the PAC sector by standardizing assessments. A primary goal is to provide comparable data across settings on the health status and other characteristics of Medicare beneficiaries treated in various PAC settings. Accordingly, the law calls for assessment to include common measures across all four settings. Considerable preparatory work to accomplish this end has been done in development of the Continuity Assessment Record and Evaluation Item Set (CARE).

In a marked shift, IMPACT calls for reporting on quality measures that have not been required before, including functional status, medication reconciliation, cognitive impairment, the incidence of major falls, skin integrity, and success in transferring information on individual and family treatment preferences as part of discharge. These measures will be developed and reported by PAC providers and ultimately made public on websites such as Nursing Home Compare and Home Health Compare. Financial penalties for failing to report quality measures will apply beginning in 2019. In addition, the Centers for Medicare & Medicaid Services (CMS) is required to develop measures of “resource use,” covering “(1) efficiency measures to include total Medicare spending per beneficiary, (2) discharge to community, and (3) risk-adjusted hospitalization rates of potentially preventable admissions and readmissions,” according to a section-by-section summary of the statute prepared by the House Ways and Means Committee and the Senate Finance Committee.

Importantly for the SNF sector, which straddles the PAC and long-term services and supports (LTSS) sector, the statute also underscores the central role of staffing in achieving high-quality outcomes. Although staffing has long been reported by SNFs and Medicaid-reimbursed nursing facilities, the quality of the data is not verifiable, since it is self-reported only once a year. As noted in a release issued on October 7 by the advocacy organization Consumer Voice, “these data are self-reported by facilities once a year, based on a 2-week period prior to a nursing home’s annual inspection, and are not subject to being audited. As a result, consumers and family members select facilities using flawed and sometimes misleading information, which can affect the quality and safety of resident care…. The nurse staffing ratios that are posted on CMS’s Nursing Home Compare website and used in the agency’s five-star rating system are increasingly acknowledged as inadequate and inaccurate.”

To correct this, IMPACT includes $11 million to fund development of a new information system for collection of payroll-based staffing levels. CMS has announced that this new system will be in place by the end of fiscal year 2016.

The law requires CMS, by 2022, to submit a technical study to Congress on a proposed structure for a new PAC-wide PPS. A study from MedPAC on a “technical prototype” and “features” of a new PPS based on the PAC Reform Demonstration is due in mid-2016.

Finally, in recognition that the hospice sector merits closer regulatory attention and enforcement, IMPACT provides funding for mandatory inspections of hospices through the federally funded survey and certification program every 3 years. According to a 2009 Government Accountability Office report, hospice programs were inspected only once every 6 years on average. According to MedPAC, “between 2000 and 2012, the number of Medicare-participating hospices grew by nearly 1,500 providers. For-profit hospices accounted almost entirely for that growth.” Lengths of stay have also increased in the hospice program, the Commission notes, particularly among populations with dementia.

The new law signals that Medicare will increasingly require, as a condition of participation and payment under the program, the data needed to assess the value and effectiveness of PAC and LTSS services, as well as other covered services.

The impact of IMPACT represents a promising down payment toward achieving the triple aim of improving quality, reducing per capita cost, and enhancing population health. But the law leaves a significant swath of services, notably LTSS, yet to be closely examined and improved.

Altarum is a nonprofit organization that works with federal and state agencies and foundations to design and implement solutions to improve the health of individuals with fewer financial resources and populations disenfranchised by the health care system. We achieve measurable results by combining our expertise in public health and health care delivery with technology, workforce training and continuing education, applied research, and technical assistance. Our innovative solutions lead to better health for beneficiaries and better value for payers.
The Impact Of IMPACT


Anne Montgomery

Anne Montgomery  - MS

Program Director, Delivery System Transformation

Areas of Expertise
  • Long-Term Services and Supports
  • Medicare, Medicaid, the Older Americans Act, and other programs
  • Social Determinants of Health in Older Adults

Anne Montgomery develops policy and research initiatives that improve long-term services and supports and medical care for older adults receiving services from Medicare, Medicaid, the Older Americans Act, and other programs. She is co-leading efforts to implement and evaluate comprehensive culture change and quality improvement in nursing homes and is working with colleagues to develop a new volunteer-based Community Care Corps program at the national level. Anne conducts workforce policy analysis for home and community-based services (HCBS) and advises on how to expand models of community-based care for older adults requiring complex services.