Wednesday, February 18, 2015

Why do long-term hospitals discharge Medicare patients 23 days after surgery?

Because they get paid an extra 79% (as a lump sum) for doing so:

Under Medicare rules, long-term acute-care hospitals like Kindred’s typically receive smaller payments for what is considered a short stay, until a patient hits a threshold. After that threshold, payment jumps to a lump sum meant to cover the full course of long-term treatment. 
Since the marginal revenue for a patient who has reached the threshold length-of-stay falls to zero, most hospitals wait until the threshold has been reached, receive the lump sum, and then discharge the patient.  

The Journal analysis of claims Medicare paid from 2008 through 2013 found long-term hospitals discharged 25% of patients during the three days after crossing thresholds for higher, lump-sum payments. That is five times as many patients as were released the three days before the thresholds.
Kudos to the WSJ for doing some data mining to back up their stories.  

So to all my medical friends and students who still think that economics doesn't explain much about medical care, re-read chapter one, or re-watch the video, to re-familiarize yourself with rational, self-interested behavior.


  1. Medicare fraud occurs in many forms. None, perhaps, may have as drastic an impact, however, as that which is described in the WSJ article, “Hospital Discharges Rise at Lucrative Times.”
    According to the Center for Medicare and Medicaid Services website, abuse of the system is defined as,
    “… practices that, either directly or indirectly, result in unnecessary costs to the Medicare Program. Abuse includes any practice that is not consistent with the goals of providing patients with services that are medically necessary, meet professionally recognized standards, and priced fairly.
    Examples of Medicare abuse include:
    • Billing for services that were not medically necessary;
    • Charging excessively for services or supplies; and
    • Misusing codes on a claim, such as upcoding or unbundling codes.”
    It goes on to reveal that providers that partake in these practices are open to criminal liability.
    It would seem then that what the WSJ is reporting could cause widespread turmoil as providers are exposed and potentially prosecuted civilly and criminally.
    The IRS website sites several examples of cases where providers admitted Medicare recipients to healthcare facilities based on the patients’ Medicare status. In each of these cases, the provider was fined and sent to jail. In order to prosecute organizations and individuals on the scale of what the WSJ is reporting, it would take epic amounts of resources. It will be interesting to see how it plays out.
    There is only one thing that would drive professional, educated people to behave in such a manner – money! I agree that economics does explain trends and behavior of firms in healthcare just as much as any other industry.

  2. The amount of medical care provided to patients varies based on financial reimbursement. Many medical providers deny that the patient can be safe with less care, but once reimbursement decreases the pattern of care alters to the new economic incentives.

    MedPac has studies to support that providers alter the delivery of care to reach a defined threshold for reimbursement. For example, home care agencies received an increase in Medicare reimbursement if a patient was provided10 or more therapy visits within a 60 day episode of care. Meeting or exceeding this threshold added approximately $1,800 in reimbursement for the episode of care. Is it any surprise that home care providers told their patients who were receiving therapy after orthopedic surgery that Medicare required 10 physical therapy visits as their plan of care?

    Health care technology is also driving this change in upcoding. Care provider’s software logic and data mining reports suggestions on how much revenue is gained or lost based on medical coding and assessments. Quality assurance and medical review may be outsourced to third parties who earn revenue based on increased acuity scores and therefore increased reimbursement. Ethical providers may find it difficult to not follow the suggested computer logic. For example, a patient’s acuity score is increased if they have certain illness, such as diabetes. Prior to computer technology guidance, a clinician may not add diabetes as an illness if the patient was managing their care properly. Now with these software logic suggestions patients charts are more inclusive, and perhaps exaggerated by the ethical providers.

    However, unethical providers must be tempted by the software logic that suggests improvements in reimbursement. And the providers who are fraudulent have learned how to game the system.

    Medicare reimbursement regulations have created incentives for the behavior described in the WSJ article. Reimbursement methodology must recognize that provider’s behavior will change to gain the economic incentives offered. I don’t understand why Medicare is surprised each time providers change their pattern of care in response to enhanced reimbursement.

  3. In this article, long-term hospitals were analyzed for the discharge of Medicare patients 23 days after surgery. Sure, Kudos to the WSJ for doing some data mining but let’s discuss what is missing from the article. The 23 day discharge threshold and payment is set by CMS based on actuarial data. This is similar to DRG payments and thresholds for acute care hospitals, where there is also an opportunity for exploitation because of the fee for service methodology.

    What about readmissions? If a patient is discharged and readmitted, there is a massive penalty to the hospital – the readmission is not reimbursable. This is the case for any 30 day all-cause readmit; the hospital can charge $0, zip, nada. In a long-term care facility as analyzed here, there is no advantage to discharging a patient at any specific timeframe. The penalties are too great- the provider’s license would be on the line if a quality of care issue is found- and the hospital would be liable for abandonment.

    These liabilities to the organization are not even considered in the WSJ article. Want to talk about keeping the patient until the last minute? Auditors are in place for that. During an audit, medical care is questioned for appropriateness of care and thoroughness of documentation (licenses are on the line here!). This article also fails to mention cost avoidance and risk mitigation. Bottom line, it’s easy to fault hospitals when only rewards are reviewed and cost avoidance is ignored.

    - Tsai, Thomas C,M.D., M.P.H., Joynt, Karen E,M.D., M.P.H., Orav, E. J., Gawande, Atul A,M.D., M.P.H., & Jha, Ashish K,M.D., M.P.H. (2013). Variation in surgical-readmission rates and quality of hospital care. The New England Journal of Medicine, 369(12), 1134-42.

  4. I would like to think that the hospitals discharge Medicare patients after the threshold has been reached because it gives them the ability to keep the patient as long as they need to stay without costing the hospital or patient extra money. There is no financial, professional, or moral incentive for discharging patients before the threshold has been met. Most medical care givers are in the medical profession because they truly care about helping patients, so if there is a financial incentive to keep the patient longer and it is better for the patient, then there would be no reason not to.

    Longer hospital stays lead to better recovery rates for patients. The cost of readmission and outpatient care can quickly outweigh the cost of extra days in the hospital. Columbia Business School recently completed a study that showed that just one extra day in the hospital had a noticeable effect on patient recovery and long term health. The study found that “overall, the number of heart attack and pneumonia patient lives saved with one more day of hospitalization versus outpatient treatment increased five- to six-fold, the school said. The cost savings came into play when comparing the cost of the extra day of hospitalization with the cost of outpatient care required with an earlier discharge” (Bird, 2014).

    Maybe this is one situation in which the financial incentive provided is in line with the moral and professional obligation to provide the best service and best future outcome for the customer.

    Bird, J. (November 2, 2014). Longer hospital stay equals lower mortality, fewer readmissions: Impatient costs lower than associated outpatient care, study finds. Fierce Healthcare. Retrieved on February 19, 2015 from

  5. There are two truths to everything. So, I would agree that Medicare has a strong influence on how long hospital facilities are keeping their patients in order to hit the threshold for payment. According to “Linking Medicare to Payment”, found on the website, there are other benefits to keeping these patients longer as well.
    In efforts to increase the quality of care provided to patients, Medicare has implemented three new programs: Hospital Readmission Reduction Program (RRP), Hospital Value-Based Purchasing Program (VBP), and Hospital-Acquired Condition (HAC) Reduction Program. The RRP program is aimed towards reducing the amount of patient readmission due to the following: complications from treatments; inadequate treatment; inadequate follow up care; and unexpected worsening of disease. The VBP program was based on pay-for-performance basis in hopes to increase the quality of care. The HAC program was created to encourage hospitals to reduce the amounts of illnesses acquired at the hospitals. (“Linking Quality to Payment,” n.d.)
    Although the original post stated hospitals are attempting to capitalize on reimbursements by keeping patients longer, Medicare established these programs in efforts to improve the quality of health of its recipients. So, maybe patients on Medicare are being kept longer at the hospitals, but as this article states, it is for good reasons.
    Linking Quality to Payment. (n.d.). Retrieved February 21, 2015, from

  6. While it would be nice to believe that the longer hospital stays are for the care of the patient in order to ensure that the appropriate care is given, it cannot be guaranteed without hearing it directly from the hospital administration. It seems like a very likely reason that the longer stays are a result of the benefit that the hospitals received from the lump sum payment that they receive from the Medicare. When you think about the options available, it is either to discharge the patient and reap no financial benefit, or hold the patient for a few extra days in order to get that lump sum payment. While it seems unnecessary to hold a patient longer than necessary, it the hospital has the room and it is not overly inconvenient, there does not seem to be any other disadvantage to the hospital. The advantage of the financial gain seems to outweigh the disadvantage of having a patient remain in the hospital for a few extra days than may be medically necessary. From a business standpoint, this may not seem to be a bad move as any organization is always looking to increase revenue and profits in any way possible.

  7. Unfortunately, it’s not surprising to hear that hospitals are taking advantage of loopholes such as this one to make their efforts more lucrative. What’s more shocking is the fact that it has been going on under our governments nose without detection for so long. The difference in the percentage of patients discharged during the most lucrative window between those at non-profit at 16%, and for-profit at 27%, is a huge red flag. One that should have been noticed and amended immediately.

    The good news is that with the Hospital Value-Based Purchasing Program, one of the Affordable Care Act programs put in place in 2013, the issue of patient’s quality care is now at the forefront. The program will pay hospitals more, or less, depending on how well they meet Medicare’s quality standards. In addition, this program does not ad to the deficit. One percent of each patients base Medicare payment is used to fund the program. Hopefully this will bring issues to light, promote change, and put the patients health first, where it should be. Time will tell…

    Conway, MD, MSc, P. (2012, December 20). Tying Medicare Payment to Quality. Retrieved February 22, 2015, from

    Weaver, C., Wilde Mathews, A., & McGinty, T. (2015, February 17). Hospital Discharges Rise at Lucrative Times. Retrieved February 22, 2015, from

  8. by Tiffany ESC id 0954241

    Under Medicare rules, long-term acute-care hospitals typically receive smaller payments for what is considered a short stay, until a patient hits a threshold. After that threshold, payment jumps to a lump sum meant to cover the full course of long-term treatment.

    That leaves a narrow window of maximum profitability in caring for patients at the nation’s about 435 long-term hospitals, which specialize in treating people with serious conditions who require prolonged care. Medicare’s thresholds can differ depending on a patient’s diagnosis category, but discharge patterns are consistent.

    (2015) Hospital Discharges Rise at Lucrative Times.,

  9. In my opinion, the entire health care system is one giant moral hazard. All of the laws and regulations governing health insurance and health care have created a system that rewards behavior that is not in patients’ best interests. Your example of hospitals discharging patients based on Medicare reimbursements instead of recovery is a perfect representation of this. Another post by Froeb states that in 1974, surgeons performed 2.4 million unnecessary operations, costing nearly $4 billion and resulting in nearly 12,000 deaths. This mismanagement of patient care for financial incentives is a moral hazard to society. Health care is not the only guilty industry, though. Schools are also now teaching based on requirements for funding instead of what is best for their students. This is a common objection to the Common Core State Standards and other testing in K-12 education.

  10. I find it completely ridiculous that the Health Care System is that desperate for money that they would unjustly keep a patient in the hospital just to reach a threshold that gives them more money. Moral hazard? Absolutely! It’s sad because these people that this is affecting can’t do anything about it. The doctor must release them from care in order to go home from the facility. Most patients have trust in their health care provider and the provider is misusing that trust. This is part of the reason that trust in the health care system is disappearing. People are starting to learn they are being taken advantage of. Furthermore, this is fraud against the insurance companies.


    Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.

  11. This comment has been removed by the author.

  12. As the article suggests, healthcare entities have determined the point at which marginal revenue equals marginal cost. Following this threshold a large sum is collected on part of the hospital for services rendered. Is it good or bad? Is it ethical or non-ethical? Well, that is a different discussion entirely. Simply put, healthcare facilities must understand their costs and reimbursements in order to be able to employ doctors, healthcare staff and ancillary staff to care for the patients that desperately need those services. However, there is a fine line between providing a service and upcoding/overcharging insurance companies to simply make additional profit.

    I was fortunate to be able to take part in a law course in healthcare fraud. The class focused on how these loopholes will be closed as well as facilities penalized for not doing what is in the patient’s best interest. Facilities taking advantage of these loopholes/illegal activities could risk large penalties triple the cost of the stay under the False Claims Act if fault is proven.

    Taxpayers Against Fraud Education Fund. (2015). “Examples of State False Act Claims Act Cases”.

  13. On the surface a solution seems simple. Unfortunately, coming to a reasonable solution is not as easy as one would think. There are pros and cons to every approach on the topics pertaining to payment and reimbursement for healthcare provisions.

    Sending a patient home too soon after surgery is not only dangerous for the patient, but is more likely to result in a re-admission or medical reoccurrence. Retaining a patient for a prolonged period of time cannot only increase the likelihood of infection, other serious medical setbacks can also occur. Additionally, the practice of retaining patients for extended or unnecessary periods of time can also result in hospital overcrowding, which can trigger other problems and issues within the facility.

    Clearly, the payment/reimbursement arrangement mentioned in this post is not beneficial to either party. A more formidable approach to reimbursement for medical related services would need to be established. Finding a solution that is palatable to both medical providers and medical insurance carriers is not as easy and clear-cut as one would think.

  14. I think this goes back to the questions from chapter one; Who is making the bad decisions?” and “do they have incentives to do so?” (Froeb, 2014) With an extra 79% as a lump sum to keep patients over 23 days after completing a surgery, I would say the hospital administration has a clear incentive to keep patients longer than then need. In the organizations view point this is an excellent way to take in additional revenue but at what cost to their patients. In an article in the Wall Street Journal a hospital kept a patient for 23 days after a complicated knee surgery. If they released the patient one day earlier on day 22 they would of received a payment of $20,000 instead of the amount of $35,888 that they received. In this case the incentives are not driving the hospital to behave in the most honest way. Check out the Wall Street Journal article to see a graph of this relationship. However until incentives change this will persist to be a problem.

    Hospital Discharges Rise at Lucrative Times - WSJ. (n.d.). Retrieved October 18, 2015, from
    Froeb, M. S. (2014). Managerial Economics A Problem Solving Approach. Boston: Cengage.

  15. This can be a controversial topic, but there are many things to take into consideration. Lets consider those that are covered by Medicare, do they have the support and means necessary to be properly taken care of after they are discharged from the hospital? Working in the health care field, it is no secret that Medicare reimbursement is a huge issue. Many organizations can make the decision not to accept certain coverages as they are losing money on the care they are giving. Hospitals are consistently losing money with certain practices. Holding Medicare patients for the 23 days it not necessarily to only make as much money as possible. It is a strategy to both collect enough to be able to cover costs of the care given, but also to be able to provide enough care to the patient that they are able to be discharged at a time where they are more likely to be able to take better care of themselves. Is the 23 days necessary for all patients? Probably not. It is not as clear cut as it may seem.
    Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.

  16. Economics drives more to the healthcare field than most people are aware. Not only does Medicare provide direction for spending and how providers in the hospital setting treat their patients, but it also dictates which hospital Emergency Medical Technicians transport patients. Few people understand Medicare will only fund ambulance transports up to the closest facility. Therefore, someone requesting to be transported thirty miles to the “larger” city and bypass the local community hospital may not be covered for that transport. What makes these decisions even more difficult is the use of online medical direction; in which emergency personnel in the field call a central location and receive advice from the doctor(s). These folks, usually support one facility over another and will almost always recommend you come to their facility; even if that means bypassing a local hospital. This can be and has been a cause for financial feuds between hospitals and local EMS Systems because these decisions often benefit the receiving facility while causing distress to the transporting agency. Now, these already underfunded ambulance services are transporting patients further and further with less and less reimbursement.