The document discusses a recent Medicare ruling that will affect Kindred long-term acute care (LTAC) hospitals. Key points: - The ruling from the Centers for Medicare and Medicaid Services (CMS) is designed to ensure appropriate payments to LTAC hospitals for treating severely ill patients. - Under the ruling, Medicare payments to LTAC hospitals are expected to be $5.3 billion for 2007. The CMS Administrator said the policies aim to ensure seriously ill patients receive necessary care with appropriate payments. - The Kindred Healthcare CEO commented that while payment reductions may not address issues with LTACs, Kindred hopes CMS will develop certification criteria to ensure only complex patients are treated at LTACs.

1. Kindred Hospital Update
Experienced Providers of Extended Acute Care September 2006
Medicare ruling
affects Kindred
Hospitals
The nationwide network of Kindred
long-term acute care (LTAC)
hospitals will be affected by the recent
ruling from the Centers for Medicare
and Medicaid Services (CMS) designed
to ensure appropriate payment for services
by LTAC hospitals to severely ill or
medically complex patients.
Long-term care hospitals, in general,
are defined as hospitals that have an
average Medicare inpatient length of
stay greater than 25 days. These hospitals
typically provide extended medical and
rehabilitative care for patients who are
clinically complex and may suffer from
multiple acute or chronic conditions.
Services typically include comprehensive
rehabilitation, respiratory therapy, head
trauma treatment and pain management.
Under the final rule, Medicare
payments to LTAC hospitals are expected
to be $5.3 billion for rate year (RY) 2007.
“Medicare’s goal is to ensure that those
seriously ill beneficiaries who require
hospital-level care get the care they need
with appropriate payments,” said CMS
Administrator Mark B. McClellan, MD,
PhD. “The policies and payment rates in
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INSIDE THIS ISSUE:
The Benefits of Delivering
Oxygen Transtracheally
pages 2
Case Study—Patient Elizabeth H., 73
page 3
Measuring Quality Will Help Prove
Value of LTAC Hospital Care
page 4
Kindred’s long-term acute care
(LTAC) hospitals feature an
interdisciplinary environment where
physicians, nurses, therapists,
nutritionists, and social workers
combine their expertise to provide
quality care. Our hospital is part of
a nationwide system of 80 LTAC
hospitals. Kindred’s hospitals provide
care to medically complex patients
who require prolonged treatment
plans and extended recovery time.
Most of our patients are referred to
us by other hospitals because of our
ability to treat complex patients by
using sophisticated technology and
a combination of disciplines.
www.kindredhealthcare.com

2. A kindred Patient’s
Testimonial
In June, my mother was transferred to
your facility. Since no one in our family
had heard of Kindred Hospital, we
were concerned about the quality
of care our mother would receive.
This letter is to inform you that we
are pleased to report the services from
the nurses, assistants and doctors
were exceptional. Please understand
that we expected the medical staff to
meet her needs. However, we never
expected the kindness, warmth and
professionalism she received. Since
our mother had been in other medical
facilities in the past—and unfortunately
experienced bad performance—we
had a gauge of good versus bad. As
an example, when mother would ask
for something, the nursing staff would
cheerfully say no problem and get what
was asked for. This did not happen
only once but rather it was the norm.
On behalf of my mother and our
family, please express our gratitude
to your employees.
Sincerely,
Louis P.
the benefits of delivering
Oxygen Transtracheally
Transtracheal augmented ventilation
(TTAV) and transtracheal oxygen
(TTO) therapy, featured in some Kindred
hospitals, delivers oxygen to respiratory
patients in a way that is less invasive and
more comfortable than a nasal cannula.
The oxygen is directly delivered into
the lungs by a small transtracheal catheter
inserted into the patient’s windpipe.
The catheter does not affect a patient’s
voice or swallowing because it is placed
below the vocal cords. The size of the
opening in the neck barely is larger than
a needle. The opening is not necessarily
permanent—it will close on its own if
the patient later decides to stop using
the catheter. The procedure often can be
performed in as little as 10 minutes.
In TTAV, a humidified mixture of
oxygen and air is delivered to the patient.
In TTO, the patient only receives oxygen.
The procedure cosmetically is more
acceptable to patients and provides greater
comfort. As the oxygen directly flows
into the trachea, it usually requires a lower
flow rate so the portable oxygen tanks will
last longer. This method also eliminates
the common problem of nasal irritation
from the oxygen flow through the nose.
TTO also has been shown to decrease
the work of breathing and to improve
exercise capacity in some patients.
The therapy requires the patient to
learn how to change and clean the
catheter daily, because it can become a
source of infection. But patients usually
elect to continue TTO because of the
treatment’s benefits.
A TTO system can be used in
conjunction with a demand-flow device
to further reduce oxygen use, thereby
permitting longer ambulatory periods
away from a stationary oxygen source.
TTO delivery improves patients’
adherence to therapy; continuous
oxygen use for 24 hours a day is
attainable (Weg and Haas, 1998).
Adherence is enhanced by the concealed
oxygen delivery system. Exercise
tolerance is increased, and studies have
shown that the work of breathing is
decreased. The TTO approach often
is successful in patients who have
refractory hypoxemia to oxygen
delivered by nasal cannula. Reduced
hospitalizations have been reported.
Short-term studies have shown oxygen
savings ranging from 30 to 60 percent.
With careful selection of the delivery
device, detailed patient education and
support from an experienced healthcare
team, patient acceptance can be
enhanced and complications minimized.
Some patients receiving TTO have
been shown to benefit from the higher
flow of TTAV (Christopher et al., 2001).
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3. Case Study—
Patient Elizabeth H., 73*
Diagnosis: Respiratory Failure,
Malnutrition, Ventilator Dependence
Treatment at Kindred: After many
unsuccessful attempts to wean her
from the ventilator, Elizabeth began
daily weaning exercises conducted
by caregivers. She could only be
fed through a tube in her abdomen,
so she began a regimen of speech-
language therapy to ease her difficulty
in swallowing. She also began low-
tolerance physical and occupational
therapy that gradually increased her
strength and ability.
With encouragement from the Kindred
staff and support from her husband,
Elizabeth was completely weaned
from the ventilator six weeks after
admission. At that time, she had
regained the ability to eat food again.
Elizabeth also was able to walk
without assistance.
Success stories like Elizabeth’s
are common at Kindred hospitals,
where multidisciplinary teams work
together to achieve a common
goal—helping our patients recover
their independence.
* The name has been changed to protect
patient confidentiality.
this final rule reflect the input we have
received from all stakeholders to achieve
high-quality, efficient care.”
“As a health care provider, LTAC
hospitals offer unique and much-needed
services,” commented Paul J. Diaz,
President and Chief Executive Officer
of Kindred Healthcare. “The health
care marketplace understands the value
proposition of our services from a clinical
and economic standpoint as evidenced
by the growth in commercial and
managed care payers seeking and
utilizing our services.
“As we have indicated in the past,
we view reductions in payment as a
shortsighted method to address perceived
issues with LTAC hospitals. We are
hopeful that CMS will avoid further
payment cuts and will now turn its
attention to developing certification
criteria to ensure that only the most
medically complex patients are treated in
LTAC hospitals and that facilities defined
as LTAC hospitals have the resources
and capabilities to treat these patients.”
In addition to the ruling, CMS is
adopting the Rehabilitation, Psychiatric
and Long-Term Care (RPL) market basket
to replace the “excluded hospital with
capital” market basket that currently
is used as the measure of inflation for
calculating the annual update to the
LTAC hospital prospective payment
system (PPS) federal rate. The RPL market
basket is based on the operating and
capital costs of inpatient rehabilitation
facilities (IRFs), inpatient psychiatric
facilities (IPFs) and LTAC hospitals.
Adopting the RPL market basket will
result in an increase in the labor share,
which is used in the adjustment for area
wages, from 72.885 to 75.665 percent.
The final rule also would make
the LTAC hospital payment system
more efficient by revising the payment
adjustment formula for short-stay outlier
(SSO) patients. These are cases where
the patient is discharged early and the
hospital’s costs may be significantly
below average for the Long-Term Care
Diagnosis Related Group (LTC-DRG)
assigned to the case.
The final rule revises the existing
payment adjustment formula for SSO
patients by reducing the part of the
current payment formula that is based on
costs and adding a fourth component to
the current formula, a blend of an amount
comparable to the hospital inpatient PPS
(IPPS) payment and the LTC-DRG per
diem payment, so that payments for SSO
cases would be the lesser of:
• 100 percent of patient costs
• 120 percent of the per diem of the
LTC-DRG payment
• the full LTC-DRG payment, or
• a blend of an amount comparable to
what would otherwise be paid under the
IPPS computed as a per diem, capped
at the full IPPS DRG comparable
payment amount, and 120 percent of
the LTC-DRG per diem payment. For
each day, as the length of stay increases,
the percentage of the IPPS comparable
amount will decrease and the percentage
based on 120 percent of the per diem
LTC-DRG specific amount will increase.
As the length of stay reaches the lower
of the five-sixths SSO threshold or 25
days, the payment will no longer be
limited by this fourth option.
CMS also will discontinue the surgical
DRG exception to the three-day or less
interrupted stay policy.
The final rule, which appeared in the
May 12, 2006, Federal Register, will be
effective for discharges occurring on or
after July 1, 2006 through June 30, 2007. n
(continued from page 1)
Medicare Ruling Affects
Kindred Hospitals

4. www.kindredhealthcare.com
Measuring Quality Will Help Prove
Value of LTAC Hospital Care
While many of us are still absorbing
the results of the 2007 rule
released by Centers for Medicare and
Medicaid Services (CMS), we must
continue to focus on the future.
Hospital quality is rapidly becoming
one of the most important and discussed
touchstones in hospital management
witness initiatives related to pay-for-
performance and patient experience.
Both government and private payers are
capitalizing on technological advances in
data collection, which allow us to quantify
performance of medical professionals and
institutions in ways never before possible.
However, many aspects of performance
measurement need further development
and refinement. While there is a growing
consensus supporting the concept of
“pay-for-performance” incentives and
other quality-related initiatives because
of the wide variety of patients, selected
measures may not be applicable to all
hospitals. In addition, long-term acute
care (LTAC) patients as a group have
been poorly studied; so making pay-for-
performance measures evidence based is
inherently difficult.
Medicare and Pay-for-
Performance Initiatives
Preliminary steps have been taken towards
pay for performance. Congress included
incentives for hospitals to publicly report
quality measurements as part of the
Medicare Modernization Act (MMA)
of 2003, a move that many hospitals had
made voluntarily prior to the legislation.
Also as part of MMA, Congress
commissioned several studies on health
quality by the influential Institute of
Medicine (IOM).
One pay-for-performance program is
already underway: the Premier Hospital
Quality Incentive Demonstration,
a voluntary participation program
conducted by the CMS. Launched in
2003, more than 250 nonprofit hospitals
participate in a program to test the
feasibility and outcomes of pay-for-
performance within hospitals. Results
released by the program showed both the
power of measurements, noting improved
quality at participating hospitals.
Given the momentum behind the
increasingly sophisticated and public
reporting of quality measurements, it
is important for the LTAC hospital
community to play its appropriate role
in designing, implementing and
monitoring results for quality indicators.
The push for increased attention
to reporting standardized quality
indicators and for pay-for-performance
reimbursement plans is based on the
belief that providing high-scoring care is
more valuable, and, in the long run, less
expensive than the consequences of poor-
scoring care. The same reasoning should
be used to support providing care in the
most appropriate setting. n
by Sean Muldoon, MD
Senior Vice President and Chief Medical Officer
Hospital Division, Kindred Healthcare
The Benefits of Delivering Oxygen Transtracheally
Another study (Hoffman et al., 1992)
compared the efficacy of transtracheal
(TT) oxygen delivery to nasal cannula
delivery in subjects with chronic
obstructive pulmonary disease (COPD).
Twenty subjects (14 men, six women)
were followed for six months during nasal
cannula delivery. A TT catheter was
then inserted, and measurements were
repeated during TT use. With TT delivery,
subjects required 45 percent less oxygen at
rest and 39 percent less during exercise
(p less than 0.0001). Oxygen use, measured
by pounds of oxygen delivered to the
home, also decreased, but the magnitude
of change was less than anticipated (mean,
14 percent; range, +4 percent to -32
percent). Hospital days decreased from 12
+/- 10 during nasal cannula use to 4 +/- 6
during TT use (p less than 0.002). Exercise
tolerance, as measured by a 12-min walk
distance, was greater during TT use (p
less than 0.0001). No change was seen in
spirometry or acid-base balance. Also, no
change was seen in Profile of Mood States,
Sickness Impact Profile or Katz Adjustment
Scale scores. Some problems were
encountered relating to use of the catheter
(displacement, mucus balls), but they were
minor, and most were confined to the
initial two months of TT use when the
tract was immature. The study concluded
that the use of TT delivery may confer
benefits that result in improved exercise
tolerance and decreased hospitalization in
patients with COPD. n
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