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Reform Update: Medicare offers waiver of 3-day rule for some ACOs, bundled payments

By Melanie Evans
Posted: August 6, 2014 - 4:00 pm ET

The average number of days that patients spend hospitalized has gradually declined, as medicine and technology improve and policymakers pressure hospitals for more efficiency. That trend, however, is at odds with Medicare rules in place since that program began requiring a three-day hospital stay before the CMS will pay for skilled-nursing care.

But now the CMS is offering a waiver of the controversial rule for hospitals participating in two alternative payment and delivery initiatives under the Affordable Care Act—the Medicare Pioneer accountable care organization program and bundled payments. The waiver could help the CMS find out whether the rule is still needed or whether these coordinated-care programs can keep skilled-nursing costs under control and simultaneously improve quality of care.

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The waiver is a voluntary option for participating hospitals. Some have accepted it and some have turned it down.

The potential savings come from hospitals coordinating multidisciplinary efforts along the entire continuum of care to get the best patient outcomes at the lowest costs. The idea is to give hospitals greater flexibility to do whatever is best and most cost-effective for patients, with financial incentives tied to meeting cost and quality targets.

But savings aren't certain. After Congress eliminated the three-day rule in 1988, that was not the case. Demand for hospital care did not decline, and use of skilled-nursing care soared. Congress put the rule back in place a year later.

How the waiver plays out under ACOs and bundled payments may reveal more about the necessity of the three-day rule. “Does this serve a benefit,” asked Barbara Wynn, a senior health policy researcher at the RAND Corp. “Or is it really discouraging the delivery of high quality, efficient care?”

Waiving the rule could prompt a rush of admissions to skilled nursing when patients could be better served in home care or less-intensive settings, she said. Or it could reduce unnecessary hospital stays. “You don't want an admission solely for the purpose of entitlement to skilled-nursing care,” she said.

Health systems that received a waiver under accountable care and bundled-payment contracts say the increased flexibility to admit patients to skilled nursing without a three-day hospitalization reduces pressure on doctors to hospitalize patients unnecessarily or send them home too soon. The waiver of the rule applies even to patients kept for observation in Pioneer ACOs, which is deemed by Medicare an outpatient service. Observation patients are not included in Medicare's bundled payment initiative.

Medicare Pioneer ACOs, a small Obamacare experiment by the Medicare Innovation Center, are eligible for the waivers, as are bundled payment participants. Both programs require hospitals to keep patient spending below target levels to earn shared savings; spending that exceeds targets can lead to penalties.

Under those models, hospitals have an incentive to avoid overuse of skilled nursing to avoid added expenses, said Vincent Mor, a Brown University health policy professor who studies long-term care. “Once you're in an ACO, everything changes,” he said. “All of the incentives are different.”

Medicare Advantage plans previously were allowed to waive the three-day rule, said Mor, who is studying how the waiver has affected those plans' use of skilled-nursing and hospital care. Results are not yet published.

Under the waiver program at Cleveland Clinic's Euclid (Ohio) Hospital, hospital patients who are stable after one day can be transferred to a skilled-nursing facility, said Dr. Mark Froimson, president of the hospital, which is among the 236 providers that have entered bundled-payment Medicare contracts since 2013.

More may enter the bundled payment program. Medicare announced last week it has nearly tripled the number of hospitals and medical groups that are candidates to test bundled payments as early as January.

As a result of the waiver of the three-day rule, the Cleveland Clinic so far has seen health spending drop 3% for hip and knee replacements performed at one hospital that received bundled payments for 10 months, Froimson said. The length of stay for those patients has dipped to 2.6 days.

Phoenix-based Banner Health, a Pioneer ACO, used the waiver to admit 44 patients to skilled nursing last month. Some patients were transferred from the hospital, where they had not been admitted but instead held under observation, said Dr. Neta Faynboym, Banner Health's chief medical officer for post-acute services. Others bypassed the hospital entirely. Some entered skilled nursing from the emergency department or on referral by primary-care doctors.

“We find that the waiver has afforded us essentially to get the patient in the right place at the right time,” said Matt Horn, director of Banner's ACO program. It's too soon to say whether the option will deliver savings, he added.

Not all hospitals participating in the Medicare alternative-payment models have opted to accept the waiver of the three-day rule, however.

“The issue is that you need to prioritize what areas you want to focus on,” said Dr. Morey Menacker, an accountable care executive with Hackensack (N.J.) University Medical Center, which has also entered into Medicare bundled payments. The health system instead decided to focus on developing its management of care as patients transfer from one care setting to another.

That includes investment in home care and social supports to enable patients to avoid skilled-nursing facilities, he said. That may be a less attractive investment when waivers make skilled-nursing admissions easier, he said.

Hospitals, docs with risk-based contracts first to join California HIE

Hospitals and doctors with risk-based contracts will be the first to join the California-wide health information exchange announced by Anthem Blue Cross and Blue Shield of California. Officials announced an ambitious $80 million plan for the exchange this week, and said the first providers to be added would be those with contracts putting hospitals and doctors at financial risk for performance on quality and control of costs. Blue Shield of California has aggressively pursued such contracts, most notably with San Francisco-based Dignity Health and Hill Physicians Medical Group in San Ramon, Calif., for the management of the California Public Employees' Retirement System members.

Private-market ACOs expand ranks

Private-market accountable care continues to grow alongside Medicare's ACO programs. St. Joseph Hoag Health, Orange, Calif., and the Children's Hospital of Orange County announced plans for an ACO that will include eight hospitals and nine medical groups. “We will provide comprehensive pediatric health care across the continuum,” Dr. Connie Bartlett, vice president of St. Jude and St. Joseph Heritage Medical Group,” said in a news release announcing the ACO.

Follow Melanie Evans on Twitter: @MHmevans

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