D ATA D R I V E N . P O L I C Y F O C U S E D LDI ResearchBRIEF Research to Improve the Nation’s Health System 2018 . No. 4 THE EFFECT OF INTEGRATION OF HOSPITALS AND POST-ACUTE CARE PROVIDERS ON MEDICARE PAYMENT AND PATIENT OUTCOMES R. Tamara Konetzka, Elizabeth A. Stuart, and Rachel M. Werner Journal of Health Economics — available online February 7, 2018 KEYFINDINGS Vertical integration between hospitals and skilled nursing facilities (SNFs) increases Medicare payments for the first 60 days of care by $2,424 (17%), compared to hospital-SNF pairs that are not vertically integrated. These integrated hospital–SNF pairs also experience a decline in 30-day rates of rehospitalization or death of 5 percentage points on a base rate of 31.3%. Vertical integration between hospitals and home health agencies (HHAs) has little effect on Medicare payments and patient outcomes, nor does informal integration in either setting. THE QUESTION Medicare claims data to examine the effects of lengthen stays in SNFs to maximize Medicare integration (both formal and informal) between payment. Additionally, hospital-SNF pairs see a In light of emerging value-based payment hospitals and PAC providers (specifically, decline in rate of readmission or death by just over reforms such as bundled payments, hospitals SNFs and HHAs) on three outcomes: 5 percentage points on a base rate of 31.3% (a have turned their attention to post-discharge Medicare payments, length of stay, and hospital relative decline of 17%) (Figure). care as they seek to improve care coordination, readmissions. reduce preventable hospital readmissions, and In contrast, vertically integrated HHAs, where reduce spending. About 38% of all Medicare HHAs are paid by episode, experience a decline patients discharged from an acute care hospital in total Medicare payments over the first 60 days, go on to use post-acute care (PAC), most of THE FINDINGS though smaller in magnitude ($303, a relative which is provided in two settings: 49% by skilled In this analysis of 109,023 hospital-SNF pairs and reduction of 2.9%). Hospital-HHA pairs also saw a nursing facilities (SNFs) and 43% by home 74,597 hospital-HHA pairs, the authors found decline in length of stay driven by reduced length health agencies (HHAs). that 1.0% are vertically integrated and 1.2% are of HHA episodes. For this group, the effect of informally integrated. Among hospital-HHA integration on readmission or death is close to One strategy hospitals have used is to vertically pairs, 2.5% are vertically integrated and 2.6% are zero. integrate care through legal acquisition informally integrated. of post-acute providers, or through more Under informal integration, where hospitals face informal arrangements, where legally separate Vertically integrated hospital-SNF pairs receive weaker incentives for coordination than vertical organizations selectively form strong ties by $2,424 more in total Medicare payments for integration, the authors find little to no effect on mechanisms such as sharing physicians or the first 60 days of care compared to hospital- either Medicare payments or patient outcomes. nurses across settings. SNF pairs that are not vertically integrated, a relative increase of 17%. The total length of stay A key question is whether integration between increases by 3.9 days, or by 12.8%. Both outcomes hospitals and PAC providers delivers on are driven by SNFs rather than hospitals. This the promise of reduced costs and improved is unsurprising given SNFs are paid per-diem, outcomes. The authors use 2005-2013 and thus hospital-SNF pairs are incentivized to COLONIAL PENN CENTER | 3641 LOCUST WALK | PHILADELPHIA, PA 19104-6218 | LDI.UPENN.EDU | P: 215-898-5611 | F: 215-898-0229 | @PENNLDI ResearchBRIEF LDI FIGURE EFFECTS OF VERTICAL INTEGRATION BETWEEN HOSPITALS AND SNFS ON MEDICARE PAYMENT, LENGTH OF STAY IN THE FIRST 60 DAYS FOLLOWING HOSPITAL ADMISSION, AND 30-DAY REHOSPITALIZATION RATE Non-vertically integrated Vertically-integrated Difference Hospital: +$150 Medicare payment $14,291 $16,715 +$2,424 SNF: +$2,274 +3.90 Hospital: -0.74 days Length of stay 30.5 days 34.4 days days SNF: +4.64 days 30-day rehospitalization or death 31.3% 25.9% -5.4% THE IMPLICATIONS coordination of care and simultaneously The authors identify the effects of integration controlling costs. As we move forward with on three outcomes of each 60-day episode: The study demonstrates that the payment payment reform aimed at constraining costs Medicare payments for both hospital and mechanisms for PAC – whether it is per- and improving quality, designing reforms that initial PAC stay, length of stay, and death or diem or episode-based payment – have anticipate provider responses will be key to their readmission to the hospital within 30 days of important effects on the organization of success. discharge. They used a number of techniques health care delivery and provider behavior. to account for patient selection into vertically These findings indicate that hospitals that integrated PAC providers, as well as the vertically integrate with SNFs are able to take advantage of how payments are structured THE STUDY hospital’s decision to vertically integrate. to increase Medicare payments overall, The authors use Medicare claims data mostly by increasing the number of SNF to observe all Medicare-reimbursed days while reducing rehospitalizations. In hospitalizations and post-acute care use in the U.S. between 2005 and 2013. They paired Konetzka RT, Stuart EA, Werner RM. The promoting policies to increase coordination of care, policymakers should bear in mind that each hospital in a Hospital Referral Region effect of integration of hospitals and post- integration may be inherently anti-competitive (HRR) with each SNF and HHA in that region, acute care providers on Medicare payment and that coordination may be accompanied by limiting their study to regions that had at least and patient outcomes. J. Health Econ. (2018), higher spending. Despite a reduction of five one vertically integrated and one informally https://doi.org/10.1016/j.jhealeco.2018.01.005 percentage points in readmission rates, total integrated pair for each PAC type. Their final Medicare spending is higher for beneficiaries sample of 109,023 hospital-SNF pairs and receiving care in integrated hospital-SNF pairs. 74,597 hospital-HHA pairs included 2,651,748 While reducing rehospitalization rates is an beneficiaries discharged from hospital to SNF LDI Research Briefs are produced by important outcome, it comes at a high price and 1,318,577 discharged to HHA. Formal LDI’s policy team. For more information under vertical integration. If 10% of beneficiaries vertical integration is defined as ownership of please contact Janet Weiner at receive care from vertically integrated hospital- a SNF and HHA by an acute care hospital. weinerja@pennmedicine.upenn.edu. SNF pairs, the annual cost to Medicare could Informal integration is based on patient flows be $209 million. This reinforces the challenge and the concentration of relationships between in designing financial incentives to increase hospital and PAC providers. ABOUT THE AUTHOR DR. RACHEL WERNER Rachel Werner, MD, PhD, is Professor of Medicine at Penn and the Department of Medicine’s Director of Health Policy and Outcomes Research. She conducts research that seeks to understand the effect of health care policies and delivery systems on quality and equity of health care. In particular, she has examined the role of quality improvement incentives on racial disparities and was among the first to recognize that public reporting of quality information may worsen racial disparities. Her study co-authors are R. Tamara Konetzka, PhD, Professor in Health Services Research in the Department of Public Health Sciences at the University of Chicago, and Elizabeth A. Stuart, PhD, Professor of Mental Health in the Johns Hopkins Bloomberg School of Public Health.