Michael A. Grippi and Michael J. Soisson

Evolution of Long-Term Acute Care and the LTAC Hospital

Evolution of the LTAC occurred in three relatively distinct phases. The original LTACs date back to the early 1920s and comprised facilities focused principally on the chronic care of patients with tuberculosis, rehabilitation of adults and children with disabilities, and treatment of psychiatric disorders. LTAC developed in response to community needs for physically and psychologically challenged citizens, and they were run primarily by philanthropic organizations. The initial LTACs were large (65 to 100 beds) and freestanding, and often incorporated a long-term residential component.

In the 1980s and early 1990s, “weaning hospitals,” which were based on an extension of principles derived from facilities caring for individuals with tuberculosis, focused on patients who required significantly longer stays than those for which the IPPS was designed—namely, patients requiring respiratory care and ventilator weaning. These typically freestanding LTACs were large enough to support small hospital operations, including meal service, physical therapy, and administrative and financial systems. Many were built and operated by a limited number of for-profit companies using private or investment equity. Designed as regional centers aimed at drawing patients from several acute-care hospitals, these early “weaning hospitals” were located in proximity to acute-care referral sources. These facilities also spawned growth of for-profit, specialty hospital chains.

TEFRA in 1982 created an alternative payment system for Medicare patients managed in LTACs, exempting these facilities from the IPPS. LTAC reimbursement under TEFRA was based on the average cost per discharge, and it established incentives for acute-care hospitals to transfer complex, “chronically critically ill” patients to LTACs. This incentive to shift high-cost Medicare patients to facilities paid on a cost basis triggered a dramatic increase in the number of LTACs from under 100 in 1990 to over 360 in 2005. Although the earliest organizations were largely not-for-profit, by 2004, for-profit organizations predominated. Currently, only two companies own two thirds of for-profit LTACs.

The most recent phase in LTAC evolution is based on the concept of a “hospital within a hospital.” As the IPPS translated into reduced lengths of stay in acute-care hospitals, excess bed capacity arose, and the number of Medicare patients requiring longer stays (because of medical complexity) remained high. In response, several hospital chains creatively proposed “lease agreements” to acute-care hospitals, under which an LTAC rented space within an acute-care facility that had excess bed capacity. As a result, the acute-care hospital was paid for unused space and reimbursed for clinical and ancillary services provided to the LTAC. In addition, the acute-care hospital could move its longer-stay (and, hence, higher-cost) Medicare patients to “another facility.” By locating within an acute-care hospital, the LTAC administrative staff achieved significantly lower operating costs, maintained access to the acute-care hospital’s medical staff, and readily identified a pool of potential referrals.

In concert with development of the “hospital within a hospital” concept, escalating costs of critical care prompted attention on patients who were “outliers” in the ICU under the IPPS. Most “outlier” patients were ventilator dependent and difficult to wean, thereby generating excess cost. Therefore, an alternative, less expensive site of care was sought.

After nearly 20 years of continuously escalating costs, in 2003 Medicare initiated a prospective payment system for LTAC facilities. Based on “long-term care diagnosis-related groups” (LTC-DRGs), payment to an LTAC is now tied to the patient’s principal diagnosis. Currently, more than 975 LTC-DRGs exist. Despite the implementation of LTC-DRGs attempting to manage escalating costs, the number of LTACs has increased further to nearly 400 (Figure 109.1). Medicare expenditures to LTACs have also ballooned to an estimated $5.27 billion in 2007. In 2008, CMS froze payments at the 2007 rate, and the agency is presently considering other cost containment measures, including a 3-year moratorium on new LTAC hospital beds.

Geographic Distribution of LTACs

For unclear reasons, a unique geographic distribution of LTACs has evolved. Unlike the case for post-acute facilities, characterized by a fairly homogeneous distribution of inpatient rehabilitation or skilled nursing facilities across the country, LTACs appear highly concentrated in certain regions. In particular, LTAC facilities predominate in the northeastern and southern parts of the United States, with 35% of all facilities in three states (Massachusetts, Louisiana, and Texas). Northern states have the majority of the older hospitals; most of the newer, respiratory-based facilities are in southern states. A variety of factors related to the origins of these hospitals, state-specific legislation relating to certification of need, and unique demographics may account for this significant variability in distribution.

CMS has long expressed interest in drawing conclusions regarding the clinical value of LTACs based on this geographic heterogeneity and questioned where patients deemed appropriate for LTACs are receiving such care in areas without LTAC facilities. Despite significant research on the basis for the heterogeneity, few solid conclusions have been drawn.

Startup Requirements

Medicare certification for an LTAC requires that the prospective facility first meet state licensing requirements as an acute-care hospital. In addition, the facility must prove that it meets Medicare’s “LTAC Conditions of Participation” during a 6-month demonstration period. Prior to 2007, these conditions made up the critical requirement that the facility have an average length of stay for Medicare patients of 25 days or greater, and achieve Medicare certification for an acute level of care through a CMS Medicare survey.

However, the signing of Medicare and Medicaid State Children’s Health Insurance Program (SCHIP) legislation in 2007 resulted in CMS expanding LTAC certification requirements to include (1) a preadmission patient review process that screens for the appropriateness of admission, as well as validation (within 48 hours of admission) of the need for LTAC admission; (2) a concurrent review process that evaluates the patient’s need for continued stay in the facility; (3) documentation of active physician involvement in patient care, with daily, onsite physician presence and the availability of consulting physicians who can be at the patient’s bedside in a “moderate period of time”; and (4) documentation of an interdisciplinary treatment plan for each patient.

For reimbursement purposes, during the demonstration period, Medicare treats the facility as a short-term acute-care hospital (in some cases, the facility may be certified as a rehabilitation facility) and pays the prospective LTAC under the IPPS. Based on this reimbursement model, most LTACs suffer significant payment shortfalls during the demonstration period and attempt to keep Medicare patient volumes as low as possible in order to minimize the negative financial impact.

For many facilities, management of the length-of-stay requirement and expected initial financial losses are significant challenges. In addition, new facilities must develop core clinical competencies, build their medical staff, and manage patients who are medically complex, yet stable enough to remain in the evolving LTAC setting. Failure to achieve the Medicare length-of-stay requirement during the demonstration period requires the facility to refile its Medicare LTAC application and begin a new 6-month demonstration period—a process that can begin only at the start of the facility’s cost report year.

Because Medicare has been the primary payer for LTACs, attempts are ongoing to define and clarify the clinical and financial values of LTACs to CMS. Indeed, patients covered by Medicare constitute approximately 65% of those admitted to LTAC facilities.