Here’s How Hospitals Cheat Medicare, And Why They Should

Here’s How Hospitals Cheat Medicare, And Why They Should
November 16 01:00 2015

Quick quiz. What should doctors do when they recognize that a hospitalized patient is ready to go home?

If you answered: “discharge the patient,” you haven’t spent time working at a long-term care hospital in the U.S. Because of complicated reimbursement rules that I will explain below, such hospitals often delay discharge until patients have been in the facility for 30 days, the point at which Medicare reimbursement rates rise sharply. In order to maximize their income, long-term care hospitals keep some patients “in house” longer than necessary. Without such delays, these facilities could face dire financial consequences.

Medicare needs to change the way it pays for long-term care.

To understand the 30-day bump in pay, bear with me why I lay out a quick history of how Medicare pays for hospital care .

In the old days, when both rock ‘n’ roll and network T.V. mattered (I’m talking about the 70s and early 80s), Medicare reimbursed hospital care on a fee-for-service basis. A physician would admit a Medicare patient to the hospital with abdominal obstruction for, say, 10 days, and Medicare would receive a bill for the 10-day stay (“per diem” charges) and for any lab tests and treatments provided during the stay. The result of this fee-for-service payment scheme was as predictable as the ending of a Scooby-Doo episode (“it would have worked if it hadn’t been for those kids”) – hospital lengths of stay soared and the number and expense of hospital services rose dramatically.

That all changed in 1984, when Ronald Reagan signed diagnosis-related groups into law, better known as DRGs. Medicare now paid hospitals on a lump-sum, per-case, by-diagnosis basis. A patient admitted with abdominal obstruction would generate a hospital payment sized to cover the average cost of caring for a patient with that diagnosis. As a result of DRGs, hospital length of stay plummeted. Patients were discharged from hospitals much sooner and followed-up in outpatient clinics, or – getting back to our story now! – cared for in long-term care facilities that billed Medicare separately for their services. Medicare was now essentially being double billed for hospital services. The acute care hospital would bill the government for the patient’s diagnosis, and discharge the patient a handful of days earlier than expected to a long-term care hospital, which would then bill Medicare on a per diem basis for its services.

Read full story at Forbes
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