August 19, Dirksen Senate Office Bldg Longworth House Office Bldg. Washington, D.C Washington, D.C

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1 Charles N. Kahn III President and CEO August 19, 2013 The Honorable Max Baucus The Honorable Dave Camp Chairman Chairman Committee on Finance Committee on Ways and Means U.S. Senate U.S. House of Representatives 219 Dirksen Senate Office Bldg Longworth House Office Bldg. Washington, D.C Washington, D.C The Honorable Orrin G. Hatch The Honorable Sander Levin Ranking Member Ranking Member Committee on Finance Committee on Ways and Means U.S. Senate U.S. House of Representatives 219 Dirksen Senate Office Bldg Longworth House Office Bldg. Washington, D.C Washington, D.C Dear Chairmen Baucus and Camp and Ranking Members Hatch and Levin: The Federation of American Hospitals (FAH) is the national representative of more than 1,000 investor-owned or managed community hospitals and health systems throughout the United States. Our members include teaching and non-teaching, short-stay, rehabilitation, and long-term care hospitals in urban and rural America, and provide a wide range of acute, post-acute, and ambulatory services. The FAH appreciates the opportunity to provide the Senate Finance Committee and House Ways and Means Committee (the Committees) with comments about ways to foster Medicare postacute care (PAC) reform. The FAH supports the Committees focus on efforts toward improving quality of care, patient outcomes, and increased efficiency in the Medicare program. We appreciate the Committees recognition of PAC providers as an integral part of this process. Providers can play a critical role in developing policies directed towards ensuring access to and improving the continuum of care for patients through a careful re-examination of the regulatory policies that govern the delivery of PAC services. We recognize that moving forward, implementing these policies and demonstrating their efficacy will be difficult, and, as such, recommend a measured approach to payment and delivery system reform with realistic expectations. Caution will be especially important given the growing pressures on PAC providers as they are asked to care for an aging Baby Boomer population. Therefore, we deeply appreciate your request for information to better understand the forces currently in play before attempting any broad-based change with unknown consequences.

2 2 EXECUTIVE SUMMARY The following comments and recommendations are consistent with the growing consensus that clinically integrated care that is well coordinated across both acute care hospitals and PAC providers is critical in driving increased efficiency and value in the delivery of care and improving beneficiary health. This type of coordinated care requires a patient-centered payment, care delivery, and regulatory system that addresses the limitations within the current siloed nature of care Accomplishing this goal must be undertaken in a careful manner with continued engagement of all relevant stakeholders in order to avoid unintended consequences. The following seven points summarize our response: 1) PAC providers can share in the responsibility for reducing avoidable hospital readmissions, but in order to do so they must be better aligned with other providers across the continuum of care and given access to more detailed and timely clinical patient information. Specifically, both acute and PAC providers will need frequent access to more comprehensive data for patients experiencing rehospitalization. Providers also should not be penalized for planned readmissions that benefit the patient or for readmissions that are unrelated to the quality or coordination of care provided in any given episode. 2) A universal assessment tool(s) that can measure health status, clinical severity, and functional impairment across all PAC sites is a necessary next step to clinical integration and payment reform. Such tools should incorporate the Functional Independence Measure (FIM) used by Inpatient Rehabilitation Facilities (IRFs), but also must measure improvement in a patient s condition over time in a comparable way across PAC settings. Universal assessment tools are necessary for providers to improve placement of patients to the most appropriate care settings. The implementation of a payment system based on assessment instruments that do not precisely capture these dimensions of patient care across PAC providers could lead to financial dislocation for providers associated with improper payments and poorer outcomes for patients. Furthermore, any such assessment tool should be developed to inform not replace physician judgment, recognizing the importance of patient preference, social supports, and other issues that can impact a patient s care. 3) While we commend efforts to put forth policies that incentivize the placement of patients in the most clinically appropriate care settings, blunt site-neutral payment policies will not achieve this goal. There are important clinical and functional differences between patients treated at the various PAC settings, which have been fostered by the CMS regulatory environment. Site-neutral payment, without the appropriate recognition of the need for highly effective risk adjustment and conforming regulatory changes, would significantly underestimate the clinical differences between patient populations served in different PAC settings and would not recognize the differential costs incurred by each PAC setting required to comply with various CMS regulations. For example, IRFs and acute long-term care hospitals (LTCHs) are required to have higher staffing ratios with more frequent patient contact by physicians than other PAC settings. In addition, IRFs and LTCHs must meet stringent Federal hospital conditions of participation among other strict federal and state hospital licensing and regulatory requirements. Blunt site neutral payment policies risk becoming site preference policies that would serve patients poorly by simply seeking the setting with the lowest payment, independent of clinical appropriateness or quality of care.

3 The FAH believes strongly that patients must be placed in the most clinically appropriate and cost-effective setting for treating their conditions, which may or may not be the lowest cost setting for any given patient. 4) Providers would benefit greatly from the Centers for Medicare & Medicaid Services (CMS) releasing clear guidance about how the agency plans to transition from the current fee-forservice (FFS) payments to policies that aggregate payments and share risk across settings, such as payment bundling. There have been only a limited number of demonstration projects that can provide valuable insight to providers in understanding CMS s plans, and there is little transparency to date as to how target payment rates are calculated, or the lessons learned through these demonstrations. Providers in general have had little experience sharing risk and may experience difficulty adapting to the upcoming transitions without receiving significantly more guidance from CMS. For example, adequate payment is critical under bundling, as patients admitted to the hospital are more clinically complex or unstable than healthy beneficiaries. Therefore, the risk for the bundled patient population cannot be spread over nonhospitalized beneficiaries as it can be under- capitated payment systems such as Medicare Advantage. In addition, providers will need time to develop numerous clinical, financial, and administrative capacities and processes necessary to succeed under any bundled payment model. 5) As payment systems move slowly toward providing greater incentives and direction to improve care integration under the current FFS system, providers continue to finance improved care coordination technologies and processes out of their limited capital reserves. FFS payment cuts inhibit providers from being able to dedicate resources to developing improved care coordination mechanisms for future value-based payment systems. CMS needs to develop rational policies bridging current and future payment systems that do not drain capital reserves through broad FFS payment reductions. At the same time, it is important to avoid policies that are excessively complicated and burdensome and effectively inhibit system transition. As such, it is imperative that CMS foster a close partnership with the provider community to carefully and collaboratively develop future payment policies and a regulatory environment supportive of patient-centered, integrated care delivery without jeopardizing beneficiary access to care in the process. The policies CMS outlined in the fiscal year 2014 LTCH rulemaking, however, would undermine this goal by denying patient access to medically necessary LTCH care. A better approach is contained in S.1486, patient and facility criteria legislation introduced by Senators Roberts and Nelson, along with several co-sponsors, that would fundamentally revise Medicare LTCH certification criteria to implement the longstanding policy goal of defining the role of LTCHs as treating only the most medically complex patients. This approach would establish minimum criteria for patients to be eligible for a medically complex level of care and would also establish facility requirements to distinguish LTCHs from general acute hospitals and other care settings. Enactment of this legislation would serve as an important bridge to future PAC reform and achieves multiple policy goals by reducing Medicare spending; ensuring appropriate placement of patients; aligning payment more closely with the needs of patients and the cost of care; and improving care transitions through pre and post-admission assessments and mandated interdisciplinary care and discharge planning. 3

4 6) The proposed measures to be used to reform PAC payment through value-based purchasing (VBP) will distribute payments based on outcome and quality measures not related to settingspecific processes or improvements in care (e.g., number of vaccinated staff). We request that the Committees investigate quality measures that are able to differentiate good quality care from bad, and reward providers for bringing value to the patient consistent with the services they provide (e.g. medical stabilization, rehabilitation of functional ability, and discharge to the community). VBP as currently designed is very site- and silo-specific, which is contrary to initiatives designed to break down siloed care. Ultimately, it will be necessary to develop quality measures that focus on the entire process of care across the entire payment episode. 7) Many of the recently implemented and proposed deficit reduction, budget, and delivery system reform proposals focus primarily on provider payment cuts and, secondarily, on moving patients to the lowest cost setting. These policies are inconsistent with many of the goals articulated by the Committees to foster integrated, efficiently delivered, patient-centered care. These policies are likely to inhibit any transition toward better patient care and ignore recent trends suggesting structural reforms are the likely reason behind the bending health care cost curve. The comments and recommendations that follow are organized around selected topic areas contained in the Committees open letter. REDUCING HOSPITAL READMISSIONS The FAH supports CMS in its efforts to more closely align providers across the health care delivery system, and believes that a focused effort to reduce preventable hospital readmissions that includes PAC providers would lead to greater care integration and better patient outcomes. We believe that there is the potential to reduce readmissions in each PAC setting. However, any system that will hold providers accountable must inform them about the characteristics and types of patients that are frequently readmitted, and must hold providers accountable only for outcomes over which they have control. Currently, PAC providers receive limited information regarding patients who have been readmitted to the hospital. For example, readmission reports that only are provided once per year and contain no patient-specific clinical information do not facilitate improvement in patient outcomes nor empower providers to more effectively coordinate across settings of care. Having a better understanding of which types of patients are readmitted would allow PAC providers to create care protocols and target initiatives to reduce inappropriate readmissions and achieve better outcomes for patients. For these types of patients, the development of predictive models, as is occurring in the private sector, would be helpful. In addition to understanding the patient s medical history and reason for readmission, it would be useful for PAC providers to know exactly where the patient received care over their full episode. This information would lead to better clinical integration, as providers could work with each other to better coordinate a patient s care plan. It also is important for both PAC providers and policymakers to be able to compare readmission rates across PAC settings. The FAH therefore suggests that PAC providers be given more comprehensive readmission data on a more frequent basis. While better access to data will assist in preventing avoidable hospital readmissions, PAC providers should not be penalized for readmissions that could not be prevented through well- 4

5 coordinated and patient-centered quality care. For example, if a patient presents with an unforeseeable and unpreventable condition while in an IRF that requires surgery in an acute care hospital, the IRF should not be penalized for readmitting the patient to the appropriate care setting. In addition, readmission measures must be adjusted to reflect the patient s socio-economic status. ASSESSMENT TOOLS The FAH appreciates the Committees acknowledgment of the importance of assessment tools in placing patients in optimal care settings, measuring clinical and functional improvement over time, and serving as a basis for determining PAC payments. A single assessment tool cannot perform all three of these functions well, however, and there likely will need to be more than one tool (such as a screening tool for patient placement and an assessment tool for measuring improvements in outcomes). Assessment tools that accurately determine medical appropriateness have been as effective as admission criteria within PAC settings; however, there currently are no available assessment instruments that properly measure the numerous clinical dimensions of a patient s health status and severity, as well as functional status, in a comparable way across PAC settings. We recommend that CMS develop and field test such an instrument(s), using a public process that engages and incorporates the feedback of various stakeholders, prior to the implementation of any payment system based on an assessment instrument. Instruments such as the CARE Tool, or scores such as the FIM used in the IRF Patient Assessment Instrument (IRF-PAI), could be used as a basis in developing such an assessment tool, but there can be significant weaknesses when applying these instruments to patients in other PAC settings. The CARE Tool, while effective in measuring a patient s functional status, does not effectively measure a patient s medical complexity and severity with regard to IRF or LTCH placement. Furthermore, while advantageous in measuring functional improvements in many patients, the CARE Tool often understates improvements in the most severe patients (e.g., patients on a ventilator) as they return to stable condition. In addition, intercoder reliability for the CARE Tool was found to be the lowest in IRFs. We recommend that policymakers, prior to moving forward with any integrated payment policy, concentrate efforts to develop and field test a powerful, but not overly burdensome instrument that can accurately assess the medical needs of a patient. The B-CARE Tool would appear to be a step in this direction, as are several private sector screening tools. Even in the presence of an effective assessment instrument, the critical importance of the physician s clinical professional judgment in appropriately placing patients must not be diminished. We believe that there is a well-established principle in the LTCH and IRF prospective payment systems of recognizing physician judgment as a critically important basis for placing patients in appropriate care settings. Patients who appear to be very similar through the use of an assessment instrument may remain clinically different when viewed through the eyes of a physician. Patients with the same diagnosis often have very different care needs based on clinical severity and social needs that are not well-reflected in existing assessment tools. In addition, there are other setting-specific policies such as the LTCH admission criteria that can improve clinically appropriate patient placement while universal assessment tools are being developed. 5

6 6 SITE-NEUTRAL PAYMENTS FAH commends CMS s goal of providing the most appropriate level of care possible to each patient. However, this goal cannot be achieved without understanding: a) the variation in clinical severity of Medicare beneficiaries treated in different PAC settings, and b) the distinct regulatory requirements imposed on each type of PAC provider. Site-neutral payment must recognize the clinical differences between patients served in different PAC settings and the differential regulatory burden placed on each setting. Site-neutral payment proposals currently rely too heavily on risk adjustment tools that have not been shown to adequately measure patient clinical severity and functional impairment, as discussed above. To provide the most clinically appropriate care to patients in the lowest cost setting, policymakers will need to carefully design a payment system where regulations follow patients across care settings just as site neutral payments might. Rather than having payment and regulation specific to PAC settings, there would need to be payments and regulations specific to patients (or clinical conditions). This is not the case in the existing FFS regulatory environment, where currently implemented site-specific regulations are not patient-centered and often inhibit PAC providers from delivering the most appropriate levels of care. For example, regulations such as the 25-day rule and the 25% rule regarding admissions for LTCHs, the 60% rule for IRFs, and the homebound requirement for HHAs constrain the clinical integration that site neutral payments intend to promote. Site-neutral payments cannot successfully improve the use of PAC placement and care until the regulatory playing field is leveled across PAC settings. How can payments be site-neutral if regulation imposes unequal costs from one setting to the next? Blunt site-neutral payment policies risk becoming site preference policies that would serve patients poorly by simply seeking settings with the lowest payment, regardless of clinical appropriateness. LTCHs and IRFs are a critical part of the PAC continuum, often treating the most severely compromised beneficiaries with the greatest medical and functional needs. We believe that placing these patients in lower cost care settings based on comparisons of reported medical diagnoses extracted from administrative data could have significant unintended consequences. SNFs and HHAs are not equipped to serve patients with the most intense health care needs and are not required to maintain the same clinical capacity as IRFs and LTCHs. This is reflected in rules implemented by CMS requiring higher staffing ratios with more frequent patient contact (especially from physicians) in IRFs and LTCHs, and would not be adequately reflected in a site-neutral payment system. Excessive cuts to IRFs and LTCHs as a result of misguided site-neutral payment policies eventually could erode access to medically necessary care for Medicare beneficiaries in these settings. BUNDLED PAYMENTS The FAH supports the movement to a more integrated payment and delivery system that promotes managing the cost of patient care, improving outcomes through better care coordination, and providing patients with appropriate levels of service in the appropriate care setting. Payment bundling is one of many PAC reforms that, if designed carefully, could further empower providers and accelerate efforts towards a more integrated clinical and financial health care system. However, implementation of a system such as payment bundling would require policymakers first to address the issues raised above with respect to improving risk adjustment methodologies, reducing avoidable hospital readmissions, developing universal patient assessment tools, and rationalizing the PAC setting regulatory environment, among other regulatory and legal barriers.

7 Bundled payments, as well as other integrated payment models, move away from the current FFS incentives by aggregating care delivery and payment across providers for a defined patient episode in a defined time frame. Under payment bundling, providers could have the opportunity to develop new and different skills and expertise, such as: Refocusing clinical processes on a longer episode of care, which may include all services delivered for 90 days (or other time periods) after discharge from the acute care hospital; Creating new ways of collaborating, communicating, and cooperating across existing silos of care delivery; Constructing or building episode-based care management and patient navigation processes; Developing predictive care pathways and treatment algorithms; Monitoring and evaluating total episode financial and quality of care outcomes; Forging relationships across providers to improve quality and reduce costs; Integrating electronic health information systems; and Developing entities with the capacity to assume significant financial risk. However, policymakers must consider and resolve several important issues before broadly transitioning to a more integrated payment system. These considerations include: The unit(s) of payment (or pricing parameters); How are the administrative costs of managing the bundle paid for; How low-volume services can be priced appropriately; Who/what can be eligible for such pricing, from a facility characteristic standpoint; Which quality and patient outcome parameters must be achieved, and what the consequences are for failure to do so; Who controls payment flow; How patient discharge decisions are made and who is responsible for them; How to avoid stinting, adverse selection, and over-utilization; and Which waivers to existing FFS payment rules are necessary to clinically integrate care across settings. In addition, in order to take advantage of the opportunities presented by payment bundling, providers will need to possess (or quickly develop) numerous organizational capabilities, including: a single responsible entity to manage the payments and financial risk; administrative, clinical, and data analytic infrastructure to redesign clinical and administrative processes; affiliations with physicians; and strong networks with other acute and PAC providers. Implementation of any payment bundling or similar system clearly requires significant investment, not only in human resources but also in physical infrastructure and capital. Model 2 under the Bundled Payments for Care Improvement (BPCI) initiative retrospective acute and PAC episodes for example, is one of many integrated payment systems currently being explored by the Center for Medicare & Medicaid Innovation (CMMI). The FAH has several concerns regarding the role of PAC providers in BPCI Model 2 as currently envisioned. This is a relatively new concept for many PAC providers, who may not yet have the infrastructure, capital reserves, or expertise to effectively manage insurance risk. Other key factors, such as the inability of bundled networks to control financial risk outside of their control due to Medicare beneficiary choice, raise additional concerns. 7

8 Furthermore, appropriate pricing of episodes of care provision under payment bundling is critical in order to prevent widespread financial dislocation among acute and PAC providers. Unlike other population-based payment models that spread risk across healthy and unhealthy individuals, payment bundling is limited only to the patients who have already fallen ill and accessed the health care system (which imposes an inherent limit on the opportunity to manage risk). Payment levels therefore must be adequate enough to appropriately care for these patients. The use of ACOs as insurers and shared risk entities with hospitals and PAC is another alternative to bundled payments, but this approach raises several concerns as well. ACOs are financially motivated to move patients to the lowest cost setting. CMS will need to recognize the important difference between lowest cost setting and most appropriate care setting. Placing patients inappropriately in the lowest cost setting based on seemingly comparable medical conditions may in fact understate the patient s clinical severity, and could result in PAC placements that jeopardize patient care. The continuing care hospital (CCH) model is another type of policy that offers various PAC provider types such as IRFs, LTCHs, and SNFs an opportunity to integrate care delivery across a full continuum of services under a single system. The FAH supports the inclusion of CCH or a similar clinical delivery model for PAC in CMS efforts to explore integrated payment systems. VALUE BASED PURCHASING/QUALITY Beginning in 2012, Medicare has rewarded hospitals that provide high quality care for their patients through the Value-Based Purchasing (VBP) program. While holding PAC providers accountable for the quality of care provided to their patients is an important step in improving patient outcomes, we recommend that the Committees carefully consider the quality measures on which PAC providers are assessed. VBP as currently designed is very site- and silo-specific, which is contrary to initiatives that break down siloed care. Moving toward episode-level quality of care should be explored. Episode-level quality of care measures need to be developed. Developing robust methods for attributing care within an episode will take some time, and the methods will need to be pilot tested prior to any implementation. We encourage the Committees to investigate how this might be accomplished. In 2013, CMS began implementing a variety of pay-for-performance or VBP programs in the post-acute community that parallel the inpatient hospital quality reporting programs in structure. We are disappointed that the quality measures chosen for these new programs do not correlate with the types of unique services or care actually delivered to patients in our facilities. We request that the Committees provide clear direction to ensure that the measures employed in VBP programs be related directly to the types of care delivered in particular post-acute settings. Several of the quality measures currently required for the PAC community were used originally in the hospital VBP program. However, these measures do not reflect quality of patient care delivered in the PAC setting. The IRF and LTCHs are being asked to report the proportion of facility employees who have received the influenza vaccine. This is an important population health measure, but does not address direct patient care in the PAC setting. Developing a measure to assess ventilatorweaning or wound-healing for LTCHs and FIM scores for IRFs might be examples of quality variables that better capture the quality of care provided to their patients. Additionally, entirely new 8

9 9 quality measures that reflect care across an episode and that could be used across all PAC providers should be developed. It is costly to establish public reporting systems to collect, evaluate and report data on quality. In establishing these new systems, the PAC community should be devoting its limited resources to collecting and reporting the data that are most relevant to its patient population. Once the systems are in place, adding population health measures might be appropriate. If appropriate relevant PAC measures are not available for immediate use or consideration, then CMS should be instructed to facilitate the development of appropriate measures that will accurately assess the quality of care provided to patients in PAC settings. The current quality reporting system attempts to retrofit measures designed for different purposes into the PAC quality assessment programs. If the Committees believe that any quality reporting program should include population level measures in addition to facility specific measures, then this should be stated explicitly, with a timeline for incorporating population health in addition to specific patient-level care quality. We support the multi-step process in current law that clearly defines the process for developing and selecting measures for use in a wide variety of federal payment programs. The process calls for federal investment in quality measure development. The process also calls for the National Quality Forum to review and endorse measures based upon the importance of each measure, their scientific soundness, feasibility to collect data and usability by patient, providers, payers and others; and assessment by the Measure Applications Partnership to determine which measures are ready to be employed in specific federal payment programs. Ultimately, the value to patients of PAC providers is realized through medical stabilization, functional improvement, and healthy discharges back to the community. These are the aspects of care on which VBP quality assessment should be based. BUDGETARY IMPLICATIONS Due to the immense pressure on providers to reduce health care spending given the federal deficit and other budgetary constraints, the past 10 years have seen an unprecedented series of developments directed at improving quality as well as delivery efficiency in health care. Public policy needs to support the vast array of efficiency and quality improvement activities underway, and observe which work and which do not. As the U.S. prepares for the cost and access pressures that will build from serving the aging Baby Boomer population, it is important that policymakers take careful measure of the forces currently in play before attempting massive system change with unknown consequences. The Office of the Actuary (OACT) within CMS and the Assistant Secretary for Planning and Evaluation (ASPE) recently have published data that suggest per-beneficiary Medicare spending will continue to grow at a rate below gross domestic product (GDP) for the next several years (Exhibit 1).

10 10 Exhibit 1: Growth in Medicare Spending per Beneficiary v. GDP Growth ( ) 5.0% 4.0% Note: Under the Affordable Care Act (ACA), the Independent Payment Advisory Board (IPAB) is tasked with maintaining Medicare per capita growth per year at less than 1 percent above GDP. Medicare expenditures were projected below the target in the most recent estimate. Growth Rate per Year 3.0% 2.0% 1.0% 0.0% Medicare Spending per Beneficiary GDP Growth Note: OACT is the Office of the Actuary, Centers for Medicare & Medicaid Services (CMS). Source: OACT 2013; Kronick, R., Po, R. (2013). Growth in Medicare spending per beneficiary continues to hit historic lows. ASPE Office of Health Policy. Lowered Medicare projections issued by the Medicare Trustees, the Congressional Budget Office (CBO), and OACT all point to health care spending growing at a much lower rate over the 2014 to 2023 time period than originally thought at the onset of the Great Recession in These falling projections largely are due to numerous structural changes in the health care system -- changes which PAC providers have played an integral role in developing and implementing (Exhibit 2). 1 The FAH and our PAC members are dedicated to continuing to improve provider efficiencies and better targeted patient care. We recommend that policymakers avoid relying on future broadbased, untargeted payment cuts, but instead promote targeted efforts to improve both quality and efficiency within the PAC sector. We recognize that the intent of the Committees request for information is directed at just this type of effort. Given the aging of the Medicare population, a strong, well-integrated network of PAC providers will be of utmost importance over the coming years to help seniors remain healthy and independent. As policymakers seek to address aggregate spending, it is imperative that they focus on trends in per-beneficiary spending and recognize that PAC providers should not be penalized through reimbursement cuts based on factors beyond their control, such as population growth and aging. We also note that the supply of PAC providers likely will need to grow as increasing numbers of Baby Boomers reach the 85 year-old mark and utilization per beneficiary is expected to rise as well. 1 Dobson, A., DaVanzo, J., Berger, G., Reuter, K. (2013). Structural changes drive health care spending slowdown: Implications for Medicare policy and deficit reduction. Retrieved from Federation of American Hospitals website:

11 11 Exhibit 2: Medicare Trustees Spending Projections for Medicare ( ) $1,050 Total Medicare Spending (in billions) $950 $850 $750 $ Estimate 2009 Estimate 2010 Estimate 2011 Estimate 2012 Estimate 2013 Estimate $ Source: Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2008 to The Committees also indicated concern with regard to the wide variation in spending and utilization by Medicare patients in all sectors of PAC. It is important to note that variations in utilization across care settings should, in fact, be expected, given the varying degrees of clinical severity across settings, and due to regulations specific to each setting which require much higher operating and capital expenses in hospital settings, as described earlier. In addition, we observe that there has been growing concern pertaining to LTCH and IRF spending. However, based on the data provided in the Committee s letter, IRF spending per beneficiary in 2011 was actually lower than SNF spending per beneficiary (Exhibit 3). Exhibit 3: PAC Medicare Data (2011) PAC Setting Annual Medicare Expenditures Annual Medicare Users Annual Medicare Spending per User HHA $18.4 billion 3.4 million $5,500 SNF $31.3 billion 1.7 million $18,500 IRF $6.5 billion 371,000 $17,500 LTCH $5.4 billion 123,000 $44,000 Source: MedPAC March 2013 Report to Congress. Further, LTCH spending, while the highest per beneficiary, represents a relatively small proportion of total PAC spending, and is closely followed by IRF total spending (Exhibit 3). And as evidenced by Exhibit 4, total Medicare spending in both LTCHs and IRFs has remained low over the past decade (since 2003) compared to HHA and SNF spending. Viewed another way, over the same period, 86 percent of the total PAC expenditure growth was attributable to SNFs and HHA compared to 14 percent for IRFs and LTCHs.

12 12 Exhibit 4: Total Spending (in Billions) by PAC Setting ( ) Source: MedPAC, CONCLUSION The FAH supports the Committees efforts to better understand the potential pressures created by and obstacles to implementing more patient-centered and clinically integrated PAC in the Medicare program. We believe that in order to change the current FFS incentives to reward value over volume, we must better align payments and regulations with patient care processes to ensure that patients are receiving the most clinically appropriate care in the right setting at the right time. In addition, numerous obstacles to clinical integration that exist under the current FFS system must be removed. A broad-based transformation of the PAC system must be undertaken in a careful and incremental way, but there are interim steps such as reducing hospital readmissions or developing a universal assessment tool that are consistent with the goals of a better designed health care system and which now can begin to rationalize the system. With warm regards,