You asked for information on long term acute care hospitals (LTACHs), particularly if there is a “25% rule” concerning admissions to these facilities.

SUMMARY

LTACHs provide specialized acute care for medically complex patients who are critically ill with multi-system complications or failures and required long hospitalizations. There are two basic types of LTACHs (1) free standing and (2) the “hospital- within-hospital” (HWH) model. The number of HWH-type LTACHs has grown significantly in recent years.

The federal Centers for Medicare and Medicaid Services (CMS) proposed a Medicare rule change whereby an HWH could admit no more than 25% of its patients from the “host” hospital in order to receive full payments for Medicare services. This will be phased in over four years.

BACKGROUND

Basic Definition

LTACHs serve patients with complex medical needs requiring long-term hospitalization in an acute setting. Many LTACH patients are admitted directly from short-stay hospital intensive care units with respiratory/ventilator-dependent or other complex medical conditions. The first generation of LTACHs were located in free-standing facilities and were established in the early 1980s.

The second generation of LTACHs employ the “hospital-within-hospital”(HWH) model. Under this approach, a third party-owned acute care hospital occupies part of a building used by another “host” acute care hospital. An HWH-type LTACH must be separately owned and licensed, maintain a separate board and administrative structure, and have a separate medical staff. Usually under this model, the LTACH leases space form the host hospital and purchases ancillary services (i. e. food services, housekeeping, laboratory, etc. ) from the host.

LTACHs differ from chronic care settings in that they focus on treating critically ill or high acuity patients in an intensive way, using specialized treatment programs geared to the patient’s illness and requirements. The goal is medical recovery and return to the home and family.

Number and Growth of LTACHs

According to the Medicare Payment Advisory Commission (MedPAC), the number of LTACHs has grown rapidly from 105 facilities in 1993 to 318 in 2003, or 12% annually. Recently, the pace of growth has doubled—Medicare certified 22 new LTACHs (see below) in the first six months of FY 2004 compared with the same number of facilities in all of FY 2003 ( MedPAC Report to Congress, June 2004, Chapter 5, p. 122, attached).

The number of HWH-type LTACHs has grown at almost three times the rate of long-term care hospitals in general—35% between 1993 to 2003, compared with 12%. By 2004, HWHs made up one-half of all long-term care hospitals. On average, LTACHs within hospitals are smaller than free standing LTACHs—36 beds compared with 111. They also have stronger relationships with one acute hospital; HWHs received 61% of their cases from that one hospital compared with freestanding hospitals receiving 42% of their cases from one acute hospital (MedPAC Report, p. 133).

LTACHs AND MEDICARE

Basis of Payment

Medicare is the predominant payer for long term hospital care, particularly for newer LTACHs. Medicare spending for LTACHs has grown more rapidly than the number of LTACHs, at 15% per year (MedPAC report, p. 122). Spending has almost quintupled from $ 398 million in 1993 to $ 1. 9 billion in 2001. The Centers for Medicare and Medicaid Services (CMS) estimates that Medicare spending for LTACHs will reach $ 2. 8 billion in 2004.

To qualify as long-term care hospitals for Medicare payment, LTACHs must meet the conditions of participation for acute care hospitals, and must have an average Medicare length of stay greater than 25 days. This is intended to ensure that patients require a high level of resources.

From 1983 to 2003, LTACHs were paid through a cost-based system. Now they are paid according to a Prospective Payment System (PPS). According to MedPAC, under the old cost-based system, LTACHs had incentives to keep their costs slightly below their facility-specific payment limit (established in their base year and updated annually) in order to qualify for limited bonuses. Payments were not adjusted for changes in the mix of patients over time. Under the PPS, Medicare pays LTACHs predetermined per discharge rates based primarily on patients’ principal diagnoses. Each discharge is assigned to one of 518 case-mix categories, and each case-mix category has its own payment rate that reflects the expected costs of treatment. While the payment system now accounts for case-mix differences, it does not account for differences in the severity of patients within each case-mix category (see MedPAC report, p. 122).

The “25% Rule”

This issue concerns the HWH-type of LTACH. Medicare rules require them to have a separate governing body, chief financial officer, chief medical officer, and medical staff. In addition, a HWH must meet one of the following three criteria:

CMS recently proposed a rule change to limit LTACHs within a host hospital (the HWH model) to only 25% of their population from the host hospital in order to receive full payments for Medicare services. Organizations such as the American Hospital Association, various state hospital associations, and the Acute Long Term Care Association sent comment letters to CMS opposing this 25% limitation.

CMS’ final rule on this, published in the August 11, 2004 Federal Register, defers immediate action on this and instead phases in the 25% standard over the next four years.

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