A recent paper published in the National Bureau of Economic Research concluded that long-term care hospitals (LTCH) are responsible for a large amount of wasted healthcare spending and no significant increase in mortality outcomes:

We estimate that a discharge to an LTCH increases net Medicare spending by about $33,000. Patients, however, do not benefit from this increased spending. Patients discharged to an LTCH owe more money out of pocket, and we find no evidence that they spend less time in institutional care or have better mortality outcomes as a result. Taken together, our findings indicate that Medicare could save roughly $4.6 billion per year with no harm to patients by not allowing for discharge to LTCHs.

According to the paper, “LTCHs are part of the post-acute care (PAC) sector, which provides patients with rehabilitation and palliative services following an acute care hospital.” These are care facilities that house patients for over 25 days. They have grown in number from an original 40 to over 400 since 1982 and massive carve-outs by federal regulators is mostly to blame.

Ironically, the Tax Equity and Fiscal Responsibility Act (TEFRA) created the original carve-out which allowed these types of hospitals to operate on a much higher reimbursement rate than other similar post-acute care facilities. Recently, LTCHs have transitioned to a payment system that pays a lump sum, just on a slightly different basis. However, in order to receive the lump sum, hospitals must have the patient in the facility through what’s known as the “threshold day.” Hospitals have responded to this by waiting until the “threshold day” (when Medicare payments rise approximately $13,000) and discharging patients after this has been satisfied, still keeping the entire payment.

LTCHs preferential treatment by the federal government is concerning for two reasons. First, the paper’s findings show that on average, the care that patients receive from LTCHs compared to other Skilled Nursing (SNF) or PAC facilities who provide the same services does not lead to better health outcomes in terms of mortality. Second, 72% of these facilities are for-profit organizations. An efficient use of Medicare dollars would not favor these high-cost facilities, that are not providing better health outcomes, over other forms of post-acute care.

The authors propose that if Medicare took steps to fix this problem then it could save taxpayers almost $5 billion. This may be a drop in the bucket compared to total federal outlays spent on health care, however, many small, efficiency-driven fixes like this could lead to some substantial savings in our overall healthcare system and better health outcomes for patients.