Summary: In 1998, Medicare began the transition to a prospective payment system for skilled nursing facility services provided to Medicare beneficiaries. Medicare began paying fixed, preset rates for each day of care?a major change from the former system of cost-based reimbursement. GAO found that the ability of Medicare beneficiaries to obtain needed care does not appear to have decreased since the implementation of the prospective payment system, although some patients may stay longer in the hospital before being admitted to a nursing home or may receive care from other post-acute-care providers. The new system does appear, however, to have affected the willingness or ability of some nursing homes to accept some types of Medicare patients. Hospital discharge planners report that facilities are reluctant to admit patients needing high-cost services, including some expensive drugs and infusion therapy, because they believe that Medicare payments for these patients may be too low. GAO also found that nursing homes prefer Medicare patients needing short-term rehabilitation, raising concerns that payments for these patients may be too high. Although the new payment system has significantly changed financial incentives, GAO concludes that aggregate payments to providers are adequate, given that inflated costs were used to establish the per diem payment rates. However, the case-mix classification system used to adjust payments to reflect the needs of patients may not appropriately allocate payments across patients and providers. GAO notes that the preferred provider system is only one of several factors contributing to the poor financial performance of Sun Healthcare Group, Inc., and Vencor, Inc., two corporations that run a large number of nursing homes.
