Traditional Fee-for-Service Medicare/Provider Payment—Postacute Care

On this page: Medicare


Postacute care under Medicare refers to services provided after inpatient hospitalization or outpatient treatment, such as skilled-nursing care and rehabilitation therapy. The most common postacute care providers are home health agencies and skilled-nursing facilities (SNFs). Hospital outpatient departments, rehabilitation facilities, and long-term care hospitals also provide such care.

The Medicare benefit for postacute institutional care requires a prior inpatient hospital stay of at least three days. Time spent in the emergency room or under outpatient observation does not count toward the three days. Medicare pays the full amount for the first 20 days of a covered SNF stay. From the 21st to the 100th day of a SNF stay, beneficiaries pay coinsurance of $157.50 a day (as of 2015). Thereafter, they are liable for the full cost. In 2016, the median cost for a semiprivate room was $225 per day ($82,128 per year).

A prior hospital stay is not required for a beneficiary to receive home health care. Medicare covers medically necessary part-time or intermittent home health services, which may include skilled-nursing care, rehabilitation therapy, and home health aide services. However, Medicare requires that a beneficiary be homebound—that is, able to leave home only with great difficulty and only for short, occasional absences—and need skilled care, including skilled nursing or physical, occupational, or speech therapy. Home health visits are not subject to deductibles or coinsurance. Medicare requires a face-to-face visit before a doctor can certify that a beneficiary needs home health services. A nurse-practitioner or other health professional may conduct that visit, but only a physician may certify the patient’s eligibility.

The four main types of postacute care providers are all paid under a PPS, most of which were implemented in the 1990s. Outpatient rehabilitation services are paid under a fee schedule. Medicare limits annual payments for rehabilitation therapy in all outpatient settings except hospital outpatient departments. CMS allows many beneficiaries to exceed these payment caps through an exceptions process. CMS collects data from patient assessments conducted in the home when receiving home health care, in skilled-nursing facilities, and inpatient rehabilitation facilities, and uses it to monitor quality and assess the adequacy of PPS payments.

Based on the following program features, AARP is concerned that current Medicare coverage is inadequate to provide reasonable access to postacute care in SNFs or at home.

  • The SNF coinsurance amount, which is computed on the basis of the Medicare hospital deductible, is much higher than the 20 percent coinsurance required for most Medicare services.
  • Medicare does not pay for SNF services after 100 days.
  • The requirement of a prior hospital stay for SNF eligibility means that Medicare beneficiaries with skilled-care needs who are not admitted as hospital inpatients will not receive the SNF benefit (e.g., patients who have been receiving home health care or who are discharged from an emergency room after being held for observation for several days). In addition, the requirement creates a perverse and expensive incentive to hospitalize Medicare beneficiaries so they can qualify for the SNF benefit.
  • The “homebound” requirement for Medicare coverage of home health services is too restrictive. It leaves many who have serious health conditions but are not technically homebound without needed care.
  • Although there is no statutory limit on the number of home health visits for beneficiaries who pass eligibility tests, Medicare’s coverage of home health care is limited to part-time and intermittent care. The program’s PPS provides an incentive for home health agencies to avoid high-cost users and to limit the number of visits.
  • Payment caps on outpatient rehabilitation therapy in all but hospital outpatient settings may limit access to necessary services or force beneficiaries to obtain care at a location that is not convenient. However, exceptions to these payment caps have been allowed through December 31, 2017.
  • The ACA includes provisions to slow the growth of Medicare spending for postacute care services. It also funds demonstrations to test different payment approaches for postacute services, including a value-based purchasing program for SNFs and home health agencies, a national program of bundled payments for acute and postacute care services, and a Medicare community-based transitions program.

Traditional Fee-for-Service Medicare/Provider Payment—Postacute Care: Policy

Ensuring quality and access

In this policy: Federal

Congress, CMS, and other government agencies should closely monitor the impact of Medicare payment policies on the quality of and access to postacute and subacute care (e.g., home health services, SNF care, long-term hospital care, and outpatient therapy services) and the appropriateness of care in various settings.

Congress and CMS should assess the effects of “bundled payment” models tested in demonstrations before adopting broader application of these models.

The incentives of postacute payment methods must safeguard access to necessary, high-quality covered services for all beneficiaries, without regard to the intensity or duration of care required.

CMS should educate the postacute provider community about beneficiaries’ rights and join with state and federal enforcement officials to take strong action against postacute providers that inappropriately deny, reduce, or restrict services.

Beneficiaries must have the right, and be advised of the right, to appeal decisions such as denials of, cutbacks in, and discontinuation of postacute care.

Education/counseling should be given to health care providers and beneficiaries to inform them that individuals who are eligible for skilled-nursing facilities may also be eligible for home health care.

Improving postacute benefits

In this policy: Federal

Congress should mandate improvements in postacute benefits, safeguard beneficiaries’ access to benefits, and avoid shifting the costs of postacute care to beneficiaries. The highest priority should be given to reform proposals that:

  • protect beneficiaries from exposure to high out-of-pocket costs by reducing the Medicare SNF coinsurance obligation;
  • increase the number of Medicare-covered SNF days;
  • remove Medicare’s prior-hospitalization requirement for new SNF admissions, and until the requirement is removed, credit time spent under observation status toward the three-day stay requirement;
  • maintain home health benefits free of copayments;
  • allow APRNs to certify eligibility for home health services (see this chapter’s section Health Care Workforce Continuing Education and Licensing); and
  • repeal payment caps for outpatient rehabilitation therapy.

Congress should explore approaches to better target Medicare home health benefits in ways that would relax the homebound requirement.

Future reform proposals should be informed by careful research on access to and delivery of care, including design options for Medicare-covered care management or care coordination for postacute and subacute (e.g., home health services, SNF) beneficiaries.

Quality of care

In this policy: Federal

CMS should take strong steps to ensure the quality of postacute care and promote quality improvements where necessary. The agency should place particular priority on:

  • pursuing initiatives to improve the quality of nursing home care;
  • using data sets, such as the Outcome and Assessment Information Set (OASIS) and others, to measure and improve home health outcomes;
  • transitioning to a common assessment instrument across all postacute care settings, including skilled-nursing facilities, home health agencies, inpatient rehabilitation facilities, and long-term care hospitals;
  • reestablishing the OASIS reporting requirement for all patients, not just Medicare and Medicaid beneficiaries;
  • working with QIOs to improve quality of care in postacute settings; and
  • improving methods of coordinating care among multiple providers while maintaining or enhancing beneficiaries’ choice of providers and their access to needed care.

Efforts to streamline OASIS must ensure its role in outcome measurement and quality improvement and not dilute it into a tool used only for determining payment amounts.