Expansion of Medicare's post-acute care (PAC) transfer payment policy to additional diagnosis-related group (DRG) codes is still under consideration by the Centers for Medicare and Medicaid Services. Our study helps inform that debate by providing objective analyses that highlight the perspective of rural hospitals. Specifically, we answer the following questions:

• How did the initial PAC payment change affect hospitals behavior? Did the impact differ by type of hospital? By pilot DRG?
• How did the payment change affect Medicare revenues for different types of hospitals?
• How would an expansion to additional DRGs affect different types of hospitals?
• How would an expansion to swing bed discharges affect rural hospitals?

We use FY98-FY01 MedPAR hospital discharge data, giving us one year of baseline data and a three-year post-implementation period. In addition, we use cost report data to construct financial vulnerability measures that consider each hospital s income, financial reserves, and liquidity. We examine four-year trends in inpatient length-of-stay and patterns of discharge to the various PAC settings for each of the 10 DRGs, for short- vs. long-stay transfers, and for various categories of hospitals. Hospitals are grouped according to their rural/urban location, size, ownership of a PAC provider, and financial vulnerability. In addition, we simulate payments under the current system and payments if the transfer policy is extended.

Publications

• Exploring the Impact of Medicare's Post-Acute Care Transfer Payment Policy on Rural Hospitals
  NORC Walsh Center for Rural Health Analysis
  Date: 07/2004
  This policy analysis brief describes a change in Medicare post-acute transfer payment policy and its impact on rural and urban hospitals. It includes data on the financial impact and hospital discharge behavior before and after the change.
• Rural Implications of Medicare's Post-Acute Care Transfer Payment Policy
  NORC Walsh Center for Rural Health Analysis
  Date: 06/2004
  This study examines the behavioral and financial impacts of the initial 10-DRG policy and projects the likely financial impact of extending the policy to cover additional DRGs or discharges to swing beds.
• Rural Implications of Medicare's Post-Acute-Care Transfer Payment Policy
  Journal Article
  NORC Walsh Center for Rural Health Analysis
  Date: 2005
  Examines how the initial policy change affected rural and urban hospitals and investigates the likely impact of the FY2004 expansion and other possible future expansions. The authors conclude that rural hospitals are not disproportionately harmed by the post-acute-care transfer policy.