This document discusses Medicare's prospective payment system for long-term care hospitals (LTCHs). It describes how LTCHs are reimbursed under Medicare Part A based on Medicare-severity long-term care diagnosis-related groups (MS-LTC-DRGs). Admissions are grouped into MS-LTC-DRGs which are assigned relative weights based on expected resource use. Payments are calculated by multiplying a standardized federal base rate by the MS-LTC-DRG relative weight. The base rate is adjusted for area wage levels and provisions exist for short stays, interrupted stays, high cost outliers, and restrictions on "hospitals within hospitals." Data is collected using the LTCH Continuity Assessment Record and Evaluation

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Principles of Healthcare Reimbursement
Sixth Edition
Anne B. Casto, RHIA, CCS

2. © 2018 American Health Information Management Association
Chapter 8
Medicare-Medicaid Prospective Payment
Systems for Postacute Care
• Learning Objectives
– Describe Medicare’s prospective payment
system for long-term care hospitals
– Differentiate the specialized collection
instruments that exist in postacute care
– Explain the classification models and payment
formulae associated with reimbursement
under Medicare and Medicaid prospective
payment systems in postacute care
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Long-term Care Hospitals Prospective
Payment System
• Key Terms
– Long-term care hospital
– Length of stay (LOS)
– Hospitals within hospitals (HwH)
– Site-neutral payments
– Long-term care hospital (LTCH) Continuity Assessment Record and
Evaluation (CARE) Data Set
– Standard federal rate
– Medicare-severity long-term care diagnosis-related groups (MS-LTC-
DRGs)
– Quintiles
– Short-stay outlier
– Interrupted stay
– High-cost outlier
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LTCH PPS
• Long-term care hospitals (LTCHs) for patients
– Multiple acute and chronic diseases
– Requiring inpatient care for extended periods
• Medicare Part A benefit
– <90 days of hospital services within benefit period
– Cost-sharing
• Inpatient deductible (unless transferred from acute care)
• 61st through 90th day coinsurance
• 60 lifetime reserve days may used after 90th day
• Once lifetime reserve days are used, the patient is responsible
for all inpatient costs
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Reimbursement Methodology
• Case Rate methodology
– All costs for admission are included in one
payment per admission
• One exception – blood clotting factors
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LTCH
ALOS 25 days for more for
Medicare beneficiaries
Over 400 LTCH
Free standing, satellites, within
acute care hospitals, aka
hospitals within hospitals (HwH)
Excluded: VA hospitals,
demonstration project hospitals,
extended neoplastic disease care
hospitals (IPPS exempt)
(see chapter 6)
Excluded admissions:
1. Psychiatric or rehabilitation
principal diagnosis
2. No preceding inpatient
admission
Site-neutral payments = IPPS
payment
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Data Collection
• LTCH Continuity Assessment Record and
Evaluation (CARE) Data Set
– Requires assessments to be completed for
each patient
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Structure of Payment
• Standard federal base rate
– Based on LTCH cost reports
– Wage index adjusted
• FY 2018 rate is $41,430.56
– The average (RW 1.0) LTCH stay is over $41,000.
• Wage index adjust base rate
• Apply cost of living adjustment (COLA) for
LTCHs in Alaska and Hawaii
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Structure of Payment
• Medicare-severity long-term care
diagnosis-related groups (MS-LTC-DRGs)
– Based on MS-DRGs used in IPPS
– Assigning admissions to MS-LTC-DRGs
follows the same process as grouping
admissions under MS-DRGs
• For a full description on how to group admissions
into MS-DRGs see chapter 6, Assigning Medicare-
Severity Diagnosis-Related Groups
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MS-LTC-DRGs and MS-DRGs
• Structurally identical to MS-DRGs
• Same group numbers and titles
• Same information required to group
admissionsSimilarities
• Relative weights reflect resource
consumption in a LTCH
• See table 8.4 in the textbook
• Distribution is different because LTCHs
do not treat a full range of conditions like
acute care hospitals
Differences
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Reimbursement Calculation
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Adjusted
base
rate
MS-LTC-
DRG
RW
Payment

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LTCH PPS Provisions
Short Stay Outlier
• Shorter than
average LOS
• Payment is a
blend of IPPS
rate and 120%
MS-LTC-DRG
per diem
amount
Interrupted Stay
• Patient admitted
to LTCH
• Patient then
transferred to
acute care
hospital, IRF or
SNF
• Patient
readmitted to
LTCH
• Treated as 1
LTCH admission
– not 2
• Each non-LTCH
setting has day
requirements
High Cost Outlier
• Admission with
extraordinarily
high costs
• Threshold is
established
each year
• Add-on
payment is 80%
of costs above
the threshold
25% Rule
• Reduce
payment for
HwH LTCHs
and satellite
LTCHs that
exceed the 25%
threshold
• Prevents LTCHs
from functions
as units of acute
care hospitals
• If 25% is
exceeded,
payment is the
lesser of LTCH
rate or IPPS
rate
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Payment Steps
• Review table 8.3 in the textbook
– Wage index adjust
– Apply COLA if applicable
– Multiply by MS-LTC-DRG RW
– Apply provisions
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