FEATURE STORY

Donna J. Cameron

postacute strategic planning

preparing for an aging population
Is your hospital prepared to offer patients high-quality, cost-effective
postacute options? A postacute strategic plan can prepare your
organization to serve an aging population.
The U.S. healthcare system is fast approaching a time when having a posta-
AT A GLANCE cute care strategy will not he simply a matter of choice for the nation's hos-
pitals and health systems. Demand for postacute services will increase as
A postacute strategic plan is important tor hospitals baby boomers in increasing numbers enter their retirement years.
to meet growing needs. Hospitals should:
> Complete a postacute bed demand study The idea of developing a postacute care strategy is not new for hospitals.
> Develop and/or convert postacute programs
Postacute programs experienced significant growth in the early 1990s as
> Organize and integrate post-acute services
hospitals, seeking to develop integrated delivery systems, implemented
> Manage DRG LOS
strategies to transition patients through the continuum of care and manage
> Monitor the transfer rule
> Perform an ongoing operational assessment
diagnosis-related group (DRG) lengths of stay (LOS).
of postacute services
> Stay abreast of regulatory changes In the late 1990s, however, these efforts encountered obstacles. The
> Stay current with ongoing payment changes Balanced Budget Act of 1997 mandated that prospective payment systems
(PPSs) he implemented for postacute services, with the result that the
financial performance of many postacute programs declined significantly.
Many hospitals evaluated whether they could afford to stay in the postacute
husiness.

Web Exclusive!
For a look at tKe history of how
prospective payment affected post-
acute care, go to www.hfma.org/hfm.
Yet an important trend is turning the tide again in favor of postacute pro -
grams. With the retirement of the baby boomer generation, tbe nation is on
the verge of a significant demographic shift toward a more elderly popula-
tion. And as a result, the postacute husiness will become increasingly impor-
tant to bospitals. Inpatients will become older and sicker, and the likelihood
that they will require some form of postacute care will increase in step.

K>4 FEBRUARY 2008 h u h h c a r e financial managsinsnt

The Strategic Question
Today, it is common to find that hospitals and
health systems are appropriately addressing the
addition and/or expansion of cardiovascular,
orthopedic, and oncology services. These busi-
ness development opportunities are incorporated
into hospital strategic plans. Capital hudgets
reflect significant dollars heing devoted to bring-
ing these new and enhanced services to fruition.
But many hospitals are not giving adequate
strategic attention to the healthcare needs of this
population following their acute treatment. The
needs of the aging population will not end with
acute medical services, such as a joint surgery or
cardiovascular procedures.
Tlie question hospital financial leaders today need
to be asking is. "How well is my healthcare organi-
zation positioned to serve the aging Americana
from both an acute and postacute standpoint?"
The Government Perspective
Government officials have advised health pro-
grams to hrace themselves for increased demands
on the healthcare system. Hospitals and health
systems need to start focusing on promoting
health in older adults, preventing disahilities,
and maintainingquality of life.
For years, a nursing
home placement has Because of the role postacute programs play in a
been a typical dis-
charge option follow- hospital's continuum of care, it is worthwhile to
ing a hospital stay. The
federal and state gov- consider a centralized organizational structure
ernments are working
hard to develop home-
for the programs.
and community-based
alternatives that provide more independence and
autonomy for senior citizens and persons with
disabilities. To help make this change happen,
state and federal governments have increasingly
freed up Medicaid dollars that traditionally were
restricted to nursing home care.'"'
a, 'Nursing Care Takes a Smart Delour," Philadelphia Inquirer,
May 27.2007,
Also, the Centers for Medicare and Medicaid
Services recently awarded $547 million in grants
to i3 states and the District of Columbia to build
Medicaid long-term care programs that will help
keep people at home and out of institutions.
Leslie V. Norwalk. the acting administrator of
CMS from October 2006 through September
2007. said. "There is more evidence than ever
that people who need long-term care prefer to
remain in their own homes and communities
whenever possible. This new program will help
states shift Medicaid's traditional emphasis on
institutional care to a system offering greater
choices that include home-based services."^
What Hospitals Should Do
As hospitals set about determining their postacute
strategy for the future, as with any strategic plan-
ning process, they should execute six essential
steps:
> Review the mission
> Complete an analysis of strengths, weaknesses,
opportunities, and threats (SWOT analysis)
> Complete a market analysis
> Compile an environmental assessment
> Establish strategic goals
> Determine associated tactics with time lines
and accountable persons
Beyond these steps, however, hospitals need to
consider a range of additional measures, such as
those discussed below, as they develop and
implement a postacute strategic plan.
b. "CMS Awards Grants to 13 States (or Alternatives to Nursing
Home Care," CMS Press Release, May 14,2007.
hfm FEBRUARY 2D0B 105
FEATURE STORY
WHAT ARE POSTACUTE SERVICES?
The simplest way to define postacute services is as
those programs in which patients are served follow-
ing an acute hospital stay. Postacute services include
inpatient rehabilitation facilities (IRF), skilled nurs-
ing facilities (SNF), long-term acute care hospitals
(LTCH), home health agencies, assisted-living facili-
ties, and some outpatient services such as physical
therapy, occupational therapy, and speech therapy.
Some argue that programs provided in acute
hospital licensed beds (such as at a LTCH) are not
"postacute." However, patients who benefit from
these services are typically referred directly from
an acute care stay.
r POSTACUTE SERVICES
Inpatient Rehabilitation Facility
> Acute hospital licensed beds
> DRG exempt rehabilitation beds
> Intensive rehabilitation (three hours of therapy
per day in at least two disciplines plus rehabilita-
tion nursing)
> Specific medical director requirements
> Average length of stay is 13.4 days
Skilled Ntjrsing Facility
> Nursing home regulations
> May be hospital-based (subacute, transitional
care) or community-based
> Patient may be "skilled for Medicare" by need
for therapy or a specific medical issue
> Requires a 72-hour acute hospital stay
Outpatient Rehabilitation
> Typically includes physical therapy, occupational
therapy, and speech therapy
> Also time-limited
Complete a postacute bed demand study. This study
should use a i:^-month data set of acute hospital
discharges to determine the type and number of
postacute beds that the hospital may need to meet
patients' discharge needs. At discharge from the
hospital, some patients maybe candidates for
multiple postacute venues such as inpatient reha-
bilitation facilities (IRFs) and skilled nursing
facilities (SNFs). It therefore is critical that an
overlap analysis be done as part of the bed
106 FEBRUARY 2008 healthcare financial management
A primary role of postacute programs in the health-
care continuum is to provide options for patients to
receive necessary clinical treatment following an
acute medical episode or surgical procedure.
Frequently, a patient cannot go home independ-
ently and needs postacute options to transition to
independent living in the community. An effective
postacute continuum can reduce rehospitalization.
particularly if the discharge situation and ongoing
support minimizes crisis admissions. Additionally,
postacute services offer opportunities for hospitals
to provide high-quality alternatives for continued
care while managing DRG length of stay in the
acute hospital beds.
Long-Term Care Hospital
1
> Acute level of care
> intended for medically complex patients who
need continued acute hospitalization
> Average length of stay must average at least
25 days
> DRG exempt
Assisted Living
> Combination of housing, personalized
supportive services, and healthcare services
> Allows each resident a choice of care and lifestyle
> Fosters independence in a safe residential
environment
Home Care
> Patients must meet the federal definition of
"homebound" for Medicare and require skilled
services
> Time-limited
> May include therapy, nursing, and home health
aide services
demand study, to account for patients who cpaalify
for multiple levels of care.
Conducting such a study can be beneficial
regardless of the current IRF, SNF. or long-term
care bospital (LTCH) beds currently being oper-
ated. Including assessment of current bed capac-
ity in tbe study may influence tbe organization to
consider expanding or reducing beds. The analy-
sis also could identify a bed need not currently

being met by the hospital continuum or a
partnering facility.
Develop and/or convert postacuie programs.
Following the post-acute bed demand study,
the hospital should inventory current postacute
offerings and determine what is lacking from
the continuum. If the hospital does not want
to own and operate a particular postacute service,
relationships with other providers may be
considered.
Organize and integrate
post-acute services.
Because of the role To be well positioned for a successful future,
postacute programs
play in a hospital's a hospital must be able to offer patients
continuum of care, it is
worthwhile to consider a full range of postacute service options.
a centralized organiza-
tional structure for the Bottom line: Initiate a postacute strategic
programs. A central-
ized organizational
planning process today.
model can facilitate
synchronized leadership, common operational
processes (e.g., preadmission assessment), elimina-
tion of duplicated personnel functions, integration of
case management, and coordination of strategic
planning across the postacute venues of care.
Manage DRG LOS. Managing DRG LOS entails
addressing various factors that can influence
timely discharge to postacute care, including case
management and discharge planning effective-
ness, physician support for discharge placement,
efficiency of operational processes, effectiveness
of the utilization review process, and capacity in
postacute discharge options. Unnecessary delays
in discharge to postacute programs can he costly
to the hospital system and can impact availability
of acute care beds. To address the delays, it is
important to consider a variety of strategies,
including redesigning postacute preadmission
processes, developing clinical pathways for key
diagnostic groups, and taking steps to improve
the effectiveness of case management between
acute and postacute care.
FEATURE STORY
Monitor the Transfer Rule. For discharges occurring
on or after Oct. i, 1998, a discharge of a hospital
inpatient is considered a transfer when assigned
to one of the qualiiying DRGs and the patient is
discharged to a distinct part of the hospital unit
suchasanlRFor LTCH. aSNFbed, or to home
under a written plan of care for the provision of
home health services within three days after dis-
charge. For a transfer case, the hospital forfeits a
portion of the DRG payment if a patient's acute
stay is shorter than the geometric mean length of
stay (GMLOS) for that DRG.
When the Transfer Rule was initially imple-
mented on Oct. 1,1998, it included only 10 DRGs.
The number of affected DRGs was expanded in
2oo3 to 29, and then to 3o in 2004. With the
issuance of a final rule in August 2005, CMS
expanded the list of DRGs subject to the transfer
policy toi82 by adopting the following criteria
that the DRG must meet:
> Tbe DRG must have a GMLOS of at least three days.
> The DRG must have at least 3,050 postacute care
transfer cases.
> At least 5.5 percent ofthe cases in the DRG are
discharged to postacute care prior to the
GMLOS for the DRG.
> If the DRG is one of a paired set of DRGs
based on the presence or absence of a comor-
bidity or complication, both paired DRGs are
included if either one meets the three criteria
above.
Under the new Medicare-severity DRGs (MS-
DRGs) effective Oct. 1, 2007, the number has
been increased again to 272 DRGs. It should be
h f m FEBRUARY 2006 107
FEATURE STORY
noted though that the percentage of DRGs
without complications has almost douhled from
23.3 percent to 41.1 percent. Asa result, there
could be a significant decrease in payment due to
the increase in cases without complications
applicable to the Transfer Rule.
Because the Transfer Rule does not affect a post-
acute provider's payment, postacute providers
rarely monitored it. Hospitals would be well
advised to monitor the rule for potential changes.
A Transfer Rule analysis can enahlc a hospital to
evaluate the impact of the changes and identiiy
diagnostic groups for review of clinical pathways.
HERE COME THE BABY BOOMERS!
The need for hospitals to develop a postacute care
strategy is underscored not only by the effects the
Balanced Budget Act of 1996, but also by the nation's
shifting demographics to an older population. By
2015, people older than age 65 will account for
almost one in every Jive people, according to a report
by the U.S. Agency ior Healthcare Research and
Quality issued Aug. 2 3 , 2 0 0 5 . Moreover, a recent
report by the American Hospital Association (AHA)
projects that Americans age 65 and older will
nearly double in number by 2 0 3 0 {When I'm 64:
How Boomers Will Change Health Care, May 2005).
As a result of this population growth, senior citizens
will make up an increasing percentage of the overall
population on Medicare.
Baby boomers, defined as the 76 million Americans
born between 1946 and 1964, are the nation's largest
and potentially wealthiest generation ever. Every
day, almost 11,000 boomers turn 5 0 - o n e every
eight seconds, according to The Boomer Project,
a Richmond, Va.-based marketing research and
consulting company. The first baby boomers will
turn 65 in 2011.
The population shift that will result from the aging of
the baby boomers also will profoundly affect health-
care delivery People older than age 65 occupy about
half of all hospital beds, represent 25 percent of all
physician office visits, and consume about 60 percent
of all healthcare dollars, according to a recent article
published in Hospitals & Health Networks (Henry,
J.D., and Henry, L.S., "Better Care for Elders," June
20, 2007). With the increasing senior citizen
108 FEBRUARY 2008 healthcare financial managemenf
Hospitals also should make sure that GMLOS
does not drive the discharge date. Rather. GMLOS
should he a consideration when facilitating clini-
cally appropriate, physician-directed discharges.
The decision to discharge a patient from a hospi-
tal should be made by the attending physician in
coordination with the case manager/discharge
planner. This decision should he made in con-
junction with tbe patient and family members to
accomplish wbat is in the hest interest of the
patient.
Perform an ongoing operational assessment of
posttKute services. For most postacute venues of
population, there will be a continued impact based
on how the elderly move through the healthcare
continuum.
By 2030, more than six of every 10 boomers v/ill
be managing more than one chronic condition
("Prevalence, Expenditures, and Complications of
Multiple Chronic Conditions in the Elderly," Archives
of Internal Medicine, 2002). Because the biggest
factors influencing medical spending are chronic
illness and a patient's level of disability, the growing
incidence of multiple chronic conditions also will
put increasing demands on our healthcare system.
Data from the National Center for Healthcare
Statistics' National Hospital Discharge Survey 2004
indicate that senior citizens constituted nearly
28 percent of the U.S. hospital admissions in 2 0 0 4 .
Based on these data, the First Consulting Group
projected in May 2 0 0 6 that by 2030, seniors will
account for 51 percent of admissions, and thai in
25 years, U.S. hospitals could annually admit 14 mil-
lion more seniors than current levels. Although what
the actual impact on inpatient admissions will be is
as yet uncertain, baby boomers will without question
place a substantial strain on healthcare resources.
And with the aging population will come an increased
prevalence of certain diseases and associated
healthcare needs that will require treatment.
Despite this trend, however, costs are not projected
to increase uniformly across major categories of
medical practice. A 2 0 0 6 study conducted by
HealthPartners estimated that the change in per
capita costs due to aging will be highest in the field
 FEATURE STORY

care, the PPS has been fully implemented.
However, hospitals should routinely reassess the
effectiveness of systems and processes that were
put into place to determine whether opportuni-
ties for improvement exist. Even though a partic-
ular process may have worked adequately,
alternative strategies could he identified to
improve efficiency and improve payment.
There are many ways to assess the effectiveness of
an already implemented system. Examples include
coding etiologic diagnosis and comorhidities on
the IRF PAl, capturing therapy minutes for SNFs,
and monitoring missed therapy visits for home
health agencies. Industry benchmarks are also
useful for analyzing costs and identifying opportu-
nities for operational process redesign.
Stay abreast of regulatory changes. Changes and
refinements in regulatory issues are constant, so
hospitals should assign responsibility to an indi -
vidual to continually monitor changes and how
they impact the postacute programs and tbe
hospital's continuum of care.
As an example ofthe types of regulatory changes
that should be monitored, consider the 75 Percent
Rule for IRFs. The 75 Percent Rule was implemented

of kidney disorders, with spending projected to rise by OVERALL SENIOR CITIZEN POPULATION GROWTH COMPARED
55 percent between 2 0 0 0 and 2050. (Martini, E.M., WITH MEDICARE POPULATION GROWTH
Garrett, N., Lindquist, T., Isbam, G.J., The Boomers Are
Coming: A Total Cost of Care Model of the Impact of
Populatior} Aging on Health Care Costs in the United States by Number of persons age 65+
Major Practice Category, Health Services Research, 2006). (in millions)
Meanwhile, the study projected tbat per capita spending
wiil increase 44 percent dunng that time period ior heart
and vascular conditions.

Particularly as baby boomers grow older, it is expected that

elective joint replacement volumes will accelerate. Spine
and sports medicine are expected to receive the greatest
boosts from tbe aging baby boomers. The previously cited
report by tbe AHA says tbat eigbt times more knee replace-
ments will be performed tban today. Oncology prevalence
is anticipated to continue increasing. Meanwbile, an article 2000 2010 2020 2030 2040 2050
in USA Today projects a 55 percent increase in the number
of cancer patients and survivors by 2 0 2 0 ("Cancer Burden
Expected to Soar, Overwbelm Doctors," Feb. 13,2007). Medicare population growth
Hypertension and arthritis are the most common cbronic
conditions among Americans age 65 or older, and Under 65 I Medicare population
Alzheimer's disease is tbe most prevalent chronic condition
among tbose 85 and older.

The demographic change also is projected to reduce per

capita costs in some areas, however. Tbe HealthPartners
study points to postnatal care, chemical dependency, and
pregnancy and infertility care as tbree sucb areas.

Nonetheless, tbe overwhelming impact of tbe increased

numbers of senior citizens will make profound demands on
2000 2010 2020 2030 2040 2050
tbe U.S. healthcare system. And hospitals and healtb sys-
tems cannot afford to be unprepared to meet these Source; U.S. Department of Health and Human Services, Centers for Disease Control and
Prevention and National Center (or Health Statistics, 2005.
demands.

Mm FEBRUARY 2008 109

FEATURE STORY
in the mid'i98osasameansto discriminate
DRG~exemptrehahilitationheds from acute care
beds. The original rule states that 75 percent of
the IRF's discharges need to he patients with
diagnoses from a defined list of 10 conditions. A
major revision to the 75 Percent Rule—published
in the May 7, 2004, Federal Registei^has revolu-
tionized the IRF industry. The revised rule
expanded the list of conditions from 1 o to i3, but
functionally restricted the types of patients that
can be admitted to the IRF level of care.
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110 FEBRUARY2008 healthcare (inancial management
Due to lobbying and persistent efforts from the
IRF industry, the effects of this change have heen
mitigated by further modifications of the 75
Percent Rule in the Medicare. Medicaid. and
SCHIP Extension Act of 3007, signed by
President Bush on Dec. 3i, 2007. As a result, the
compliance threshold has been frozen at 60 per-
cent. Monitoring of this rule by CMS is retro-
spective. Hospitals should implement effective
monitors on an ongoing basis to ensure compli-
ance and evaluate the impact on their postacute
discharge patterns.
As another example of major regulatoiy change,
consider the 35 Percent Referral Rule affecting
LTCHs, whicb specifies that for an LTCH that is a
"hospital within a hospital" (HwH) or for a free-
standing LTCH that is not deemed to be "off cam-
pus" by CMS, at least 25 percent of the admissions
must come from a source other tban the host
hospital. This rule is being implemented via a
transition period until tbe cost reporting period
beginning on or after July i, 51007, and before
Oct. 1. 2007. and it has significant implications
for moving patients from host bospitals to HwHs.
Host hospitals will potentially see an impact on
contractual agreements witb HwHs. The rule cre-
ates an urgent need for bospitals to devise a plan
to address this issue quickly, so that strategies
can be executed during the transition period,
Moreover, the reach of the 25 Percent Referral
Rule has heen broadened via a final rule issued
May 11. 2007. Under this change, the 25 Percent
Referral Rule has been extended to all LTCHs,
including freestanding and satellite facilities.
Admissions over 25 percent from a single referral
source hospital to any LTCH will be paid using
short-term hospital rates, which are lower than
the LTCH PPS rates. This change will significantly
affect patient referrals to LTCHs. particularly
those affiliated with primary or secondary hospi-
tals. For existing LTCHs, this expansion of the
25 Percent Referral Rule will be phased in over
three years.
Siay current with ongo/ng payment changes. It is
critical that hospitals have designated individuals.
FEATURE STORY

increases in disease prevalence, and cbanging

The effect of the various PPSs
has heen to create a need for a stronger
alliance and collaboration among
clinical operations, coding, and finance
personnel to estahlish systems to
optimize performance.
including finance personnel, wbo are charged
witb continually monitoring cbanges in payment
metbodologies. The effect of the various PPSs bas
been to create a need for a stronger alliance and
collaboration among clinical operations, eoding,
and finance personnel to establish systems to
optimize performance.
expectations of aging baby boomers to have hroad
options for sustaining tbeir independence in the
community, a hospital's need for future strategic
planning does not stop witb addressing the
patient needs up to the point of discbarge from
the acute bospital stay. To be well positioned for a
successful future, a hospital also must be able to
offer patients a full range of postacute service
options. Bottom line: Initiate a postacute strate-
gic planning process today. •
About the author
Donna ) . Cameron
is a consultant, Health Evolutions, Inc.,
Indianapolis {dcameron@health
evolutjons.com).

The Bottom Line?

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112 FEBRUARY 2008 haalthcarc financial management