Traditional Medicare Provider Payment—Postacute Care


Postacute care under Medicare refers to services provided after inpatient hospitalization or outpatient treatment. These could be services such as skilled-nursing care and rehabilitation therapy. Postacute care is commonly provided by home health agencies, skilled-nursing facilities (SNFs), hospital outpatient departments, rehabilitation facilities, and long-term care hospitals.

The Medicare benefit for SNF care (for up to 100 days) 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. After 20 days of postacute care, Medicare beneficiaries incur significant cost-sharing (which can be covered by Medigap plans). Medicare pays the full amount for the first 20 days of a covered SNF stay. From the 21st to the 100th day of an SNF stay, beneficiaries paid coinsurance of $167.50 a day in 2018. After 100 days, they were liable for the full cost.

Beneficiaries who are considered homebound and need part-time skilled-nursing visits or therapy services may receive home health care services. Home health care services do not require a prior hospitalization. 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.

Most postacute care providers are paid under a per diem or episode-based prospective payment system except in the case of outpatient rehab services, which are paid under a fee schedule for individual services. In 2018, Congress repealed annual payment limits for rehabilitation therapy in outpatient settings. As with other Part B services, Medicare now pays 80 percent of the fee-schedule amount for rehab therapy services. CMS collects data from patient assessments conducted in the home when receiving home health care, in SNFs, and inpatient rehabilitation facilities, and uses it to monitor quality and assess the adequacy of prospective payment system (PPS) payments.

Postacute care has several features that raise concerns about the adequacy of coverage. They include cost-sharing, the 100-day cap on SNF services, and the “three-day stay” requirement and payment incentives, which may reduce access for higher need beneficiaries.

  • 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. For example, 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.
  • There is no statutory limit on the number of home health visits for beneficiaries who pass eligibility tests. However, 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 limit the number of visits.
  • The Affordable Care Act 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. This includes 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 care transitions program.




Impact on quality and access

Congress, the Centers for Medicare & Medicaid Services (CMS), and other federal agencies should closely monitor the impact of Medicare payment policies on the quality of—and access to—postacute care, and the appropriateness of care in these settings.

Congress and CMS should assess the effects of bundled payment models tested in demonstrations before adopting a 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.

Health care providers and beneficiaries should be informed that individuals who are eligible for skilled-nursing facilities (SNFs) may also be eligible for home health care.

Quality of care

CMS should take active 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 SNF 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 SNFs, 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 Quality Improvement Organizations 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.


Postacute benefits

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 reforms 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; and
  • allow Advanced Practice Registered Nurses to certify eligibility for home health services (see also Health Care Workforce Licensing and Continuing Education).

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 (e.g., home health services, SNF) beneficiaries.