Skilled Nursing Facilities: Approval Process for Certain Services May
Result in Higher Medicare Costs (Chapter Report, 12/20/96,
GAO/HEHS-97-18).

Pursuant to a congressional request, GAO reviewed: (1) the growth of
skilled nursing facility (SNF) costs and SNF use in relation to hospital
use; (2) the characteristics of Medicare SNF patients and the types of
services they receive in SNFs being paid higher than normal amounts
compared to other SNFs, as well as whether patients in such facilities
receive appropriate care; and (3) whether the Health Care Financing
Administration's (HCFA) process for assessing requests for higher
payments ensures that only SNFs furnishing atypical services are granted
exceptions.

GAO found that: (1) SNF use has increased since 1983 when the Medicare
hospital prospective payment system (PPS), which pays a predetermined
amount per hospital discharge, was introduced and gave hospitals a
financial incentive to shorten lengths of stay; (2) the average length
of hospital stay for Medicare patients has decreased from 10 days in
1983 to 7.1 days in 1995, indicating that, as expected, some
substitution of SNF care for hospital care has occurred; (3) the average
length of hospital stay decreased more for those Medicare patients whose
diagnoses were more likely to lead to a SNF admission, such as hip
fractures, than for Medicare patients as a whole; (4) considering
patients with these types of diagnoses, hospitals with SNF units saw
larger decreases in the average patient length of stay than did
hospitals without SNF units; (5) the increasing number of SNFs granted
routine cost limit (RCL) exceptions and the resulting additional
payments, almost $100 million in fiscal year 1995, has contributed to
the growth in Medicare SNF costs; (6) contrary to expectation, GAO did
not find that SNFs with exceptions had a higher proportion of patients
requiring complex care than SNFs without exceptions; (7) patients
identified as requiring complex care by the medical records GAO
reviewed, and who reside in SNFs granted exceptions, were generally
provided appropriate care; (8) HCFA's review process for RCL exception
requests does not ensure that SNFs actually provide atypical services to
their Medicare patients; (9) HCFA's exception screening benchmarks
basically take into account only whether requesting SNFs treat a higher
than average proportion of Medicare patients; and (10) the
patient-specific information obtained from requesting SNFs is generally
not used to assess whether the Medicare beneficiaries need or receive
atypical services.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-97-18
     TITLE:  Skilled Nursing Facilities: Approval Process for Certain 
             Services May Result in Higher Medicare Costs
      DATE:  12/20/96
   SUBJECT:  Skilled nursing facilities
             Health resources utilization
             Health services administration
             Health care cost control
             Patient care services
             Health care programs
             Medical services rates
             Long-term care
IDENTIFIER:  HCFA Medicare Provider Analysis and Review Database
             Blue Cross-Blue Shield Benefits Insurance Plan
             Medicare Program
             Ohio
             Missouri
             Maine
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Special Committee on Aging,
U.S.  Senate

December 1996

SKILLED NURSING FACILITIES -
APPROVAL PROCESS FOR CERTAIN
SERVICES MAY RESULT IN HIGHER
MEDICARE COSTS

GAO/HEHS-97-18

Inadequate Medicare Exception Process

(106432)


Abbreviations
=============================================================== ABBREV

  ADL - activity of daily living
  DRG - diagnosis-related group
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HMO - health maintenance organization
  MDS - Minimum Data Set
  MDS+ - Minimum Data Set Plus
  MEDPAR - Medicare provider analysis and review
  NPR - Notice of Program Reimbursement
  PPS - prospective payment system
  PRO - peer review organization
  RCL - routine cost limit
  RUG-III - Resource Utilization Group, version III
  SNF - skilled nursing facility
  TIA - transient ischemic attack

Letter
=============================================================== LETTER


B-270512

December 20, 1996

The Honorable David H.  Pryor
Ranking Minority Member
Special Committee on Aging
United States Senate

Dear Senator Pryor: 

In response to your request, we conducted a study of (1) the growth
of skilled nursing facility (SNF) costs and SNF use in relation to
hospital use; (2) the characteristics of Medicare SNF patients and
the types of services they receive in SNFs being paid higher than
normal amounts compared to other SNFs, as well as whether patients in
such facilities receive appropriate care; and (3) whether the Health
Care Financing Administration's (HCFA) process for assessing requests
for higher payments ensures that only SNFs furnishing atypical
services are granted exceptions, and what information HCFA gathers to
assess such requests.  This process does not adequately distinguish
between SNFs that provide atypical services (and thus qualify for
additional payments under the regulations) and SNFs that have higher
than normal costs for other reasons, such as inefficiency. 

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter.  At that time, we will send copies to
appropriate congressional committees and other interested parties. 
We will also make copies available to others upon request. 

This report was prepared under the direction of David P.  Baine,
Veterans' Affairs and Military Health Care Issues, who can be reached
on (202) 512-7101.  You may also call Thomas Dowdal at (202) 512-6588
or Sandra K.  Isaacson at (202) 512-7174.  Other GAO contacts and
staff acknowledgments are listed in appendix VII. 

Sincerely yours,

Janet L.  Shikles
Assistant Comptroller General


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

Skilled nursing facilities (SNF) provide posthospital care for people
who need a level of care higher than what could be provided in the
home.  Medicare payments to SNFs have been growing rapidly,
increasing from $456 million in fiscal year 1983 to an estimated
$10.8 billion in 1996.  The number of SNFs that have sought and been
granted payments higher than those normally allowed by Medicare has
also grown, from a total of 80 during fiscal years 1979 through 1992
to 552 in fiscal year 1995 alone.  The SNF industry maintains that a
major reason for cost growth and increased requests for higher
payments is that SNFs care for more complex and costly patients than
they did in the past. 

Concerned over the increase in Medicare SNF costs and the number of
SNFs granted higher than normal payments, the Ranking Minority
Member, Senate Special Committee on Aging, requested that GAO report
on (1) the growth of SNF costs and SNF use in relation to hospital
use; (2) the characteristics of Medicare SNF patients and the types
of services they receive in SNFs being paid higher than normal
amounts compared to other SNFs, as well as whether patients in such
facilities receive appropriate care; and (3) whether the Health Care
Financing Administration's (HCFA) process for assessing requests for
higher payments ensures that only SNFs furnishing atypical services
are granted exceptions, and what information HCFA gathers to assess
such requests. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

After a hospitalization, Medicare covers in full the allowable costs
of SNF care received by beneficiaries for up to 20 days and costs
above a daily coinsurance amount for the 21st through the 100th day. 
In 1979, HCFA established limits on the amount of routine costs
(room, board, and general nursing care) that Medicare would recognize
as reasonable.  These limits are known as routine cost limits (RCL). 
Medicare pays SNFs for routine costs on a per-patient-day basis, up
to the RCL.  However, if a SNF incurs high costs as a result of
providing atypical services to some or all of its Medicare patients,
it may request an exception from the RCL.  For example, patients with
complex care needs, such as ventilator care or treatment for severe
bedsores, might require nursing care beyond what would typically be
provided, causing the SNF providing such care to incur higher than
normal nursing costs.  If the SNF seeks and is granted an RCL
exception, it would be reimbursed for all or part of its routine
costs above its RCL. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

SNF use has increased since 1983 when the Medicare hospital
prospective payment system (PPS), which pays a predetermined amount
per hospital discharge, was introduced and gave hospitals a financial
incentive to shorten lengths of stay.  Higher SNF use means higher
total costs for SNF care.  The average length of hospital stay for
Medicare patients has decreased from 10 days in 1983 to 7.1 days in
1995, indicating that, as expected, some substitution of SNF care for
hospital care has occurred.  Furthermore, the average length of
hospital stay decreased more for those Medicare patients whose
diagnoses were more likely to lead to a SNF admission, such as hip
fractures, than for Medicare patients as a whole.  In addition,
considering patients with these types of diagnoses, hospitals with
SNF units saw larger decreases in the average patient length of stay
than did hospitals without SNF units.  Another factor leading to
increased SNF use was that coverage rules were liberalized in 1988 in
response to a court decision.  Finally, the increasing number of SNFs
granted RCL exceptions and the resulting additional payments--almost
$100 million in fiscal year 1995--has contributed to the growth in
Medicare SNF costs. 

To gain an exception to RCL, a SNF is supposed to show that it
furnishes atypical services to Medicare beneficiaries.  Therefore, it
is reasonable to expect the SNFs with exceptions would be caring for
patients with more complex care needs.  However, contrary to
expectation, GAO did not find that SNFs with exceptions had a higher
proportion of patients requiring complex care than SNFs without
exceptions.  For example, in the four states' data GAO analyzed, it
found no substantive difference in Medicare patients' ability to
perform activities of daily living (such as eating) regardless of
whether the SNF had received an exception.  Furthermore, considering
therapy that might be indicative of complex care needs, GAO found no
substantive differences in the amount and type of therapy provided. 
When reviewing the medical records of patients identified as
requiring complex care and who reside in SNFs granted exceptions, GAO
found that appropriate care was generally provided. 

The number of SNFs granted exceptions to RCL has risen from 62 in
fiscal year 1992 to 552 in 1995.  However, HCFA's review process for
RCL exception requests does not ensure that SNFs actually provide
atypical services to their Medicare patients.  HCFA's exception
screening benchmarks basically take into account only whether
requesting SNFs treat a higher than average proportion of Medicare
patients.  Moreover, the patient-specific information obtained from
requesting SNFs is generally not used to assess whether the Medicare
beneficiaries need or receive atypical services.  In effect, to gain
approval for an exception, a SNF that treats a higher than average
percentage of Medicare patients only has to show average routine
costs that exceed RCLs, which could be due to inefficiency rather
than the provision of atypical services. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      SNF USE HAS INCREASED AS
      HOSPITAL LENGTH OF STAY HAS
      DECREASED
-------------------------------------------------------- Chapter 0:4.1

Medicare's switch in 1983 to PPS for inpatient hospital care with its
incentive to discharge patients as soon as possible combined with a
1988 liberalization of Medicare's SNF coverage criteria both
contributed to the substantial growth in SNF use.  With increased
use, Medicare costs for SNF reimbursement also grew.  In 1984,
Medicare beneficiaries had 333,000 covered SNF stays at a total cost
of about $465 million (or $1,397 per admission), but by 1995, there
were over 1.5 million stays at a cost of about $7.5 billion (or
$4,902 per admission).  Over this same period, the average length of
hospital stay decreased from 10 days to 7 days, indicating that some
substitution of SNF care for what would in the past have been the
last few days of hospital care occurred. 

Hospital lengths of stay declined more for Medicare patients whose
diagnoses suggested that they might need posthospital care, such as
patients treated for hip or pelvic fractures, than for Medicare
patients as a whole.  GAO examined 12 such diagnoses and each showed
this trend.  Furthermore, for 11 of these 12 diagnoses, the average
length of stay for Medicare patients was shorter in hospitals with
SNFs than for hospitals without SNFs. 


      SNFS WITH AND WITHOUT
      EXCEPTIONS CARE FOR SIMILAR
      MEDICARE PATIENTS AND
      PROVIDE SIMILAR SERVICES
-------------------------------------------------------- Chapter 0:4.2

Because SNFs with exceptions are reimbursed higher amounts than SNFs
without exceptions, they could be expected to take care of patients
who are sicker or who otherwise require more services than patients
in SNFs without exceptions.  However, in the four states GAO studied,
it found no substantive differences between the characteristics of,
and services received by, Medicare patients residing in SNFs granted
exceptions and those in SNFs that did not receive exceptions.  For
example, GAO found no substantive difference in Medicare patients'
ability to perform various activities of daily living, or in the
frequency with which certain types of treatments and therapies were
furnished to these patients.  Furthermore, according to peer review
organization reviewers who studied the medical records of 100
Medicare patients in five SNFs with exceptions, who were identified
as requiring or likely requiring complex care by SNF staff, patients
in three of the SNFs did not demonstrate a need for intense or
complex care.  The reviewers did find in the other two SNFs, however,
that about half of the patients reviewed required more complex care
than would typically be expected. 

The physician reviewers also found, after reviewing the 100 medical
records, that the patients generally received appropriate care. 
However, in several of these SNFs, the reviewers did find some cases
in which inappropriate care had been furnished.  Of the 100 cases
reviewed, physician reviewers found, among other problems, 5
instances of medication errors and 3 instances of delays in
contacting physicians about patient problems.  Reviewers identified
one patient who required outpatient hospital treatment as a result of
a SNF staff member's failure to carry out a procedure properly. 


      HCFA'S EXCEPTION REVIEW
      PROCESS IS INADEQUATE
-------------------------------------------------------- Chapter 0:4.3

To be granted an exception, a SNF must demonstrate for all its
patients, both Medicare and others in Medicare-certified beds, that
it meets one of three HCFA benchmarks by having (1) a shorter average
length of stay; (2) a higher than average amount of ancillary
services, such as drugs or therapy;\1 or (3) a higher than average
proportion of Medicare patients.  However, Medicare patients
generally have much shorter lengths of stay and receive many more
ancillary services than other patients.  As a result, for many
facilities the three criteria really boil down to one--Medicare's
portion of SNF patients.  For example, urban hospital-based SNFs have
overall average lengths of stay of 132 days and average ancillary
costs of $63 per day while these averages for Medicare patients are
just 17 days and over $142 per day.  Thus, as the proportion of
Medicare patients increases, average length of stay should decrease
and ancillary costs per day should increase.  But a higher percentage
of Medicare patients itself does not necessarily mean that these
patients receive atypical routine services. 

In addition to demonstrating that they meet one of the HCFA
benchmarks, SNFs must submit data summarizing patients' diagnoses,
ability to perform activities of daily living, and destination upon
discharge.  HCFA has not, however, developed guidance on how these
data are to be used in determining whether a SNF provided atypical
services, and only 3 of the 10 fiscal intermediaries GAO visited used
any of these data when reviewing exception requests.  Thus, a SNF
that meets a benchmark in effect only has to show that its costs are
higher than its RCL to gain an exception, even though the higher
costs could be the result of inefficiency rather than the Medicare
patients' need for atypical services. 


--------------------
\1 HCFA uses ancillary services costs as an indicator of atypical
services even though these services are not considered routine and
are paid without regard to HCFA's routine cost limit. 


   RECOMMENDATION
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Secretary of Health and Human Services direct
the HCFA Administrator to revise the SNF exception to the RCL review
process so that it can differentiate between SNFs that furnish
atypical services to Medicare patients and SNFs that merely have
higher than normal costs. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

The Department of Health and Human Services (HHS) generally agreed
with GAO's recommendation to improve the exception process.  HHS
believes that data being developed under a current SNF payment method
demonstration will prove adequate for this purpose. 


INTRODUCTION
============================================================ Chapter 1

Skilled nursing facilities (SNF) provide care for people who no
longer require a hospital level of care but need a higher level of
medical services than what could be provided in the home.  Medicare's
payments for SNF services have grown from $456 million in fiscal year
1983 to an estimated $10.8 billion in fiscal year 1996.  During this
same period, the number of SNFs requesting and being granted payments
for routine services higher than those normally allowed has also
grown.  The main reason cited by the SNF industry for the requests
for higher rates is that some SNFs are caring for more complex and
costly patients and, therefore, higher payments are justified. 


   MEDICARE AND SNFS
---------------------------------------------------------- Chapter 1:1

Medicare, authorized by title XVIII of the Social Security Act, is a
federal health insurance program that covers almost all citizens 65
years of age or older and certain disabled people.  About 38 million
individuals are covered.  The program has two parts.  Part A,
financed by payroll taxes, covers inpatient services in hospitals and
SNFs as well as home health and hospice care.  Part B, a voluntary
program financed by enrollee premiums and general revenues, covers
physician services and a wide range of other services such as
laboratory tests and medical equipment used in the home.  Medicare is
administered by the Health Care Financing Administration (HCFA)
within the Department of Health and Human Services (HHS). 

To qualify for SNF services, a Medicare beneficiary must have been
hospitalized for 3 or more days, be admitted to the SNF on a medical
professional's order for a condition related to the hospitalization,
and need daily skilled nursing or therapy services.  When the
beneficiary meets these conditions, Medicare covers all necessary
services, including room and board, nursing care, and ancillary
services such as drugs, laboratory tests, and physical therapy. 
Medicare pays the full amount for the first 20 days.  For the 21st
through the 100th day of covered care, the beneficiary pays
coinsurance of up to $92 per day (in 1996), and Medicare pays the
remainder.  Medicare coverage ends after the 100th day. 

To be eligible to receive payment under the Medicare program, SNFs
must meet a set of 15 requirements, each of which consists of a
number of elements.  These requirements are designed to ensure that
the SNF is capable of providing quality care to patients in a safe
environment and cover such areas as fire safety, cleanliness, nursing
staff, and medical records.  HCFA contracts with state health
agencies to survey nonstate-owned SNFs to determine whether they meet
the requirements, a process known as survey and certification.  A
team of health and safety professionals annually inspects the
facility and reviews the care furnished to patients.  The state team
recommends to HCFA whether to certify the facility for participation,
and HCFA makes the final decision. 


      MEDICARE SNF PAYMENT METHOD
-------------------------------------------------------- Chapter 1:1.1

Medicare pays SNFs on the basis of reasonable costs, which Medicare
defines as those costs that are appropriate, necessary, and related
to patient care.  The program has a set of cost reimbursement
principles that are used to determine whether claimed costs meet the
definition of reasonable costs.  SNFs submit cost reports to Medicare
annually that are the basis for determining the facilities'
reasonable costs. 

HCFA contracts with insurance companies such as Blue Cross and Blue
Shield plans and Mutual of Omaha to process part A claims.  These
contractors are called intermediaries, and their functions for SNFs
include paying claims, reviewing the necessity of care, and auditing
cost reports.  The intermediaries pay SNFs during the year on the
basis of interim rates, which are designed to closely approximate
reasonable costs.  After reviewing, and perhaps auditing, a SNF's
cost report, the intermediary makes a final settlement, either paying
any underpayment or recovering any overpayment. 

Under authority granted by section 223 of the Social Security
Amendments of 1972, HCFA has established a limit on the amount of
costs for routine services (room, board, general nursing, and
administration costs) Medicare will recognize as reasonable.  This
routine cost limit (RCL) is set separately for freestanding urban,
freestanding rural, hospital-based urban, and hospital-based rural
SNFs.  For freestanding SNFs the RCL is set at 112 percent of mean
routine costs.  Cost limits for hospital-based SNFs are set at the
limit for freestanding SNFs plus 50 percent of the difference between
the freestanding limit and 112 percent of mean routine costs of
hospital-based SNFs.  In 1996, this resulted in the RCL for urban
hospital-based SNFs being about $39 per day higher than that for
urban freestanding SNFs and about $26 per day higher for rural
hospital-based versus rural freestanding SNFs.  The RCL is adjusted
for differences in wage rates across geographic areas. 


         EXEMPTIONS AND EXCEPTIONS
         TO RCL
------------------------------------------------------ Chapter 1:1.1.1

During SNFs' first 3 years of operation, they can receive new
provider exemptions from RCLs.  The exemptions can last as long as 3
years and 11 months depending on when during the SNF's cost-reporting
year the exemption becomes effective.  The reason for the exemption
is that new providers often have higher than usual costs as they hire
staff and gradually increase their occupancy rates.  During the
exemption period, SNFs are paid their full reasonable costs whether
or not those costs exceed their RCLs. 

Any SNF that is not exempt from the RCL can request an exception if
its routine costs exceed its limit.\2 While there are five
circumstances for exceptions,\3 about 98 percent of exception
requests are for the atypical services criterion.  As defined by
regulation (42 C.F.R.  413.30), atypical services are items or
services furnished because of the special needs of the Medicare
patients treated and necessary in the efficient delivery of needed
health care.  For example, a common claim by SNFs seeking exceptions
for atypical services is that they have high nursing care costs. 

Regulations governing exemptions and exceptions were in existence
when RCLs were first established in 1979.  In 1994, HCFA issued
Transmittal 378, the agency's first written guidelines on the
exception process.  Transmittal 378 established comparative data for
the four groups of SNFs for which RCLs are established, required SNFs
to submit patient-specific data such as patient diagnosis, and
imposed time deadlines on the intermediary and HCFA to handle
exception requests. 

To obtain an exception, a SNF must submit a written request to the
intermediary responsible for paying the SNF's claims.  The
intermediary reviews the request using Transmittal 378 guidelines and
sends the exception request and its recommendation to HCFA.  The
intermediary's recommendation can be to approve the requested rate,
approve at a lower rate, or deny the request.  HCFA reviews the
request and the intermediary's recommendation and makes the final
decision.\4 (See app.  I for a detailed description of the exception
process). 


--------------------
\2 SNFs with a low volume of Medicare patients can elect to be paid
the average amount per day for Medicare patients in the state.  SNFs
choosing this option are not eligible for exceptions. 

\3 RCL exceptions are permitted for atypical services, extraordinary
circumstances, providers in areas with fluctuating populations,
medical and paramedical education, and unusual labor costs. 

\4 Under a pilot project initiated in August 1995 and currently
authorized to continue until August 1997, HCFA delegated final
decision authority for exception request approvals to six
intermediaries for the SNFs served by those intermediaries. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:2

The Ranking Minority Member of the Senate Special Committee on Aging
asked us to describe how Medicare's SNF costs and usage have grown in
relation to hospital use and to assess whether Medicare's process for
deciding whether SNFs warrant higher rates discriminates between SNFs
that treat more complex cases and those that have high costs but do
not treat more complex cases.  He also asked us to ascertain whether
there were differences between the Medicare patients treated by
facilities that received higher rates and those that did not.  To
respond to this request, we addressed the following questions: 

  -- How have SNF costs and use grown in relation to hospital use? 

  -- How do Medicare patients in SNFs granted exceptions compare with
     Medicare patients in SNFs that have not received exceptions,
     including whether patients in SNFs granted exceptions need more
     intense or complex care? 

  -- How do services provided by SNFs granted exceptions compare with
     services provided by SNFs that have not received exceptions (for
     example, nurse staffing levels, physician coverage, and therapy
     services)? 

  -- Do patients in SNFs granted exceptions receive appropriate care? 

  -- What information does HCFA gather to assess RCL exception
     requests, and does its process ensure that SNFs are furnishing
     atypical services before granting RCL exceptions? 

To identify growth in SNF use and its relation to hospital use, we
obtained and analyzed HCFA data on Medicare beneficiary use of
services in both settings.  We also reviewed a number of studies and
reports related to this area.  To assess whether hospital length of
stay was different when hospitals have SNF units, we examined changes
in length of stay between fiscal years 1991 and 1994 for all Medicare
patients and for 12 diagnoses that are likely to result in
posthospital care.  (See app.  II for a description of the 12
diagnosis-related groups.)

To address whether HCFA's RCL exception process ensures that SNFs
granted exceptions actually furnish atypical services, we reviewed
HCFA's statutory authority and responsibilities for establishing and
administering Medicare's SNF RCL exception process and HCFA's
regulations and guidance to intermediaries for reviewing exception
requests filed by SNFs.  In particular, we reviewed the current SNF
exception request review process that was set out in HCFA's
Transmittal 378 instructions issued in July 1994.  We also discussed
the SNF exception process with HCFA officials in the Bureau of Policy
Development. 

We visited 10 intermediaries\5 to determine the SNF exception request
review process employed by each and verify that their reviews
complied with the guidance laid out in Transmittal 378 and subsequent
written correspondence.  In November 1995, HCFA provided us with a
database that contained information on 1,379 approved exception
requests.\6 The 10 intermediaries processed 789, or 57 percent, of
these exceptions.  The intermediaries we visited included five that
processed more than 50 exception requests, two that processed fewer
than 20 requests, and three participating in HCFA's experiment giving
final approval authority to intermediaries.  Two of the five selected
high volume intermediaries also participated in the pilot project. 

To answer the questions about SNF patient characteristics and
facility services, we analyzed (1) a compilation of HCFA-required
resident assessment data (known as the Minimum Data Set (MDS)) about
each nursing home resident in Maine, Missouri, Ohio, and Washington
for calendar year 1994 and (2) Medicare claims file data for 1992 and
1994.  In addition, for Maine and Ohio, we applied a HCFA method for
classifying nursing home patients into homogenous groups according to
common health characteristics and the amount and type of resources
they use.  To provide additional information on patient and facility
characteristics, we visited five SNFs that had received exceptions in
the past and continue to apply for exceptions.  We chose these SNFs,
located in California, Illinois, Indiana, Massachusetts, and
Washington, with input from state officials and local nursing home
ombudsmen. 

To assess whether the care Medicare beneficiaries received in SNFs
granted exceptions was appropriate, we asked officials in the SNFs we
visited to identify a universe of their Medicare patients who they
believed needed or likely needed more intense or complex care.  We
then randomly selected 20 of these patients' records from each
facility that were sent to the peer review organization (PRO) located
in the SNF's state, where they were reviewed by registered nurses and
physicians using HCFA evaluation guidelines for quality and
appropriateness of care.\7 We also asked the reviewers to judge the
intensity and complexity of care needed by the patients. 

We did not independently examine the internal and automated data
processing controls for automated systems from which we obtained data
used in our analyses.  HCFA subjects its data to periodic reviews and
examinations and relies on the data obtained from these systems as
evidence of Medicare-covered services and expenditures and to support
its management and budgetary decisions.  We did however, assess the
reliability of the data by testing multiple data elements to confirm
their expected relationships to one another, and individual data
elements for specific attributes.  The state-specific data we
analyzed and the information from the site visits cannot be projected
to the nation as a whole.  (See app.  III for a more detailed
discussion of the methodology for analyzing patient characteristics,
services provided, and appropriateness of care.)

With this exception, we conducted our review from July 1995 to
September 1996 in accordance with generally accepted government
auditing standards. 


--------------------
\5 These were Aetna Life Insurance Co.  offices in South Windsor,
Connecticut; Aetna Life Insurance Co.  offices in North Hollywood,
California; Aetna Life Insurance offices in Fort Washington,
Pennsylvania; Associated Hospital Service of Maine (Maine Blue
Cross); Blue Cross of California; Blue Cross and Blue Shield of
Mississippi; Community Mutual Insurance Corp., Ohio; IASD Health
Services Corporation (Blue Cross of Western Iowa); Mutual of Omaha
Insurance Co.; and Veritus Inc.  (Blue Cross of Western
Pennsylvania). 

\6 HCFA provided revised and updated information in June 1996.  Those
data are the source for the 1,759 approved exceptions discussed in
ch.  4 of this report. 

\7 PROs are organizations that contract with HCFA to review the
necessity, appropriateness, and quality of inpatient hospital
services, health maintenance organization (HMO) services, and some
outpatient surgical services received by Medicare beneficiaries. 
PROs are also responsible for reviewing Medicare beneficiary
complaints, including those about care in SNFs. 


SNF USE INCREASED AS HOSPITAL
LENGTH OF STAY DECREASED
============================================================ Chapter 2

The average length of hospital stay for Medicare patients has gone
down since the prospective payment system (PPS) was introduced in
1983.  At the same time, SNF use has gone up, indicating that some
substitution of SNF care for hospital care has occurred under PPS. 
Average length of hospital stay has decreased more for those patients
whose diagnoses are more likely to lead to a SNF admission. 
Moreover, for patients with these diagnoses, hospitals with a SNF
unit saw even larger decreases in average length of stay than
hospitals without a SNF unit. 


   CHANGES IN HOSPITAL AND SNF USE
---------------------------------------------------------- Chapter 2:1

Before Medicare introduced its hospital PPS in fiscal year 1984,
hospitals could maximize their Medicare revenues by keeping
beneficiaries in the hospital as long as possible.  Each additional
day of hospital stay meant more reimbursement.  PPS changed financial
incentives for hospitals by paying them a fixed amount per discharge
that differs on the basis of the patient's diagnosis.  This
encouraged hospitals to be more efficient and to control costs.  One
way for hospitals to control costs is to reduce the average length of
patient stay, and one way to reduce the length of stay is to transfer
patients to SNFs as soon as medically appropriate.  As a result, it
was expected that SNF use would increase after PPS. 

Table 2.1 shows for fiscal years 1983 through 1995 the number of
discharges from hospitals and admissions to SNFs along with the
average length of stay in each setting.  Hospital average length of
stay decreased by about 29 percent, and discharges per 1,000
beneficiaries also decreased by about 24 percent.  The reduction in
discharges per 1,000 beneficiaries can be explained in large part by
the substitution of ambulatory and outpatient surgery for inpatient
surgery.  For example, in 1981, the base year for PPS, about 332,000
Medicare discharges were for cataract surgery, accounting for over 1
million days of care.  Today, almost all cataract surgery is done on
an outpatient basis. 



                         Table 2.1
          
          Medicare Inpatient Hospital and SNF Use,
                          1983-95

              Hospitals                        SNFs
          ------------------            ------------------
          Discharg                      Admissio
            es (in   Average              ns (in   Average
Fiscal    thousand    length  Calendar  thousand    length
year            s)   of stay      year        s)   of stay
--------  --------  --------  --------  --------  --------
1983        11,700      10.0      1983       309      29.2
1984        11,500       9.2      1984       333      26.6
1985        10,500       8.7      1985       353      23.4
1986        10,600       8.7      1986       347      22.4
1987        10,400       8.9      1987       327      21.5
1988        10,400       9.0      1988       446      26.5
1989        10,300       9.0      1989       805      35.5
1990        10,500       9.0      1990       738      28.8
1991        10,700       8.7      1991        \a        \a
1992        11,100       8.5      1992       919      27.5
1993        11,100       8.2      1993     1,105      28.1
1994        11,500       7.6      1994     1,319      27.4
1995\b      11,100       7.1      1995     1,543      26.0
----------------------------------------------------------
\a Data not available. 

\b Hospital and SNF data for 1995 are preliminary. 

Even though the complexity of hospital cases, as measured by the mean
hospital case mix index, has increased on average by almost 28
percent since PPS began, average length of stay has gone down.  Some
of the decrease can probably be explained by the substitution of SNF
care for what would in the past have been the last few days of
hospital care.  Beneficiary use of SNF services has increased from 10
admissions per 1,000 beneficiaries in 1983 to 42 per 1,000 based on
preliminary data for 1995, and the percentage of hospital discharges
resulting in SNF admissions has increased from 2.7 percent to 13.3
percent. 

PPS' effect on SNF use was initially smaller than expected and
sometimes contrary to expectations.  Medicare SNF admissions
increased from 309,000 in 1983 to 353,000 in 1985.  During the same
period, Medicare SNF payments increased 5 percent, from $456 million
to $480 million.  However, between 1985 and 1987, this trend
reversed.  Medicare SNF admissions fell to 327,000, a 7 percent
decline.  Any PPS effect on Medicare SNF utilization was offset by
intensified utilization review by Medicare intermediaries. 

Several events occurred in the late 1980s that resulted in increased
SNF usage.  In 1988, HCFA implemented revised SNF coverage guidelines
in response to a lawsuit (Fox v.  Bowen, 1987).  The intent of these
new guidelines was to make it easier for beneficiaries to obtain SNF
coverage and to increase the consistency of coverage determinations. 
Enactment of the Medicare Catastrophic Coverage Act in 1988 also had
a major effect by increasing coverage and reducing beneficiary cost
sharing.  These changes provided a strong incentive for providers to
become certified as Medicare SNFs.  Over 1,600 new SNFs and nearly
75,000 new beds were certified between December 1988 and December
1990. 

The combined effects of increased coverage and increased provider
resources produced rapid growth in the use of the Medicare SNF
benefit during calendar year 1989, the only year the catastrophic
coverage provisions were fully in effect.  Covered days of care more
than doubled over the previous year, from 11.8 million to 28.6
million, while program payments increased from about $1 billion to
$2.8 billion. 

With the repeal of the Medicare Catastrophic Coverage Act in 1989,
the SNF benefit structure returned to that in effect in 1988 after
settlement of the lawsuit.  This, as expected, produced a drop in
utilization and payments for Medicare SNF services in 1990.  However,
SNF utilization and payments remained well above pre-1989 levels, and
by 1992 had surpassed the 1989 level. 


   LENGTH OF STAY DECLINES WERE
   LARGER FOR DIAGNOSES OFTEN
   REQUIRING POSTACUTE CARE
---------------------------------------------------------- Chapter 2:2

In 1991 the average length of stay for Medicare patients in PPS
hospitals was 7.9 days.  It fell to 6.9 days in 1994, a decrease of
12.9 percent.  However, we found that for 12 diagnosis-related groups
(DRG)\1 that are likely to require posthospital-care services, the
declines in length of stay were larger.  As shown in table 2.2, the
change in length of stay between 1991 and 1994 for these 12 DRGs
ranged from 16.7 percent to over 27 percent. 



                               Table 2.2
                
                  Change in Average Length of Stay for
                    Selected DRGs From 1991 to 1994

                                        Average length    Decline in
                                           of stay      length of stay
                                        --------------  --------------
                                                                Percen
DRG\a                                     1991    1994    Days       t
--------------------------------------  ------  ------  ------  ------
001                                       13.4    10.6     2.8    20.9
014                                        9.0     7.5     1.5    16.7
113                                       15.4    12.8     2.6    16.9
209/491\b                                 10.1     7.3     2.8    27.7
210                                       12.0     9.1     2.9    24.2
211                                        9.2     7.0     2.2    23.9
217                                       15.7    12.5     3.2    20.4
218                                        8.6     6.4     2.2    25.6
236                                        8.9     7.3     1.6    18.0
253                                        7.7     6.0     1.7    22.1
263                                       16.2    12.5     3.7    22.8
271                                       10.2     8.4     1.8    17.6
----------------------------------------------------------------------
Note:  Discharges from Maryland were not included because that state
has a different hospital payment system. 

\a The DRGs are described in app.  II. 

\b In 1991, DRG 209 contained procedures involving both the lower and
upper extremities.  In 1992, DRG 491 was added, and procedures
involving the upper extremities were removed from 209 and assigned
this DRG.  In order to compare them with 1991, discharges for both of
these DRGs were combined for 1994. 

As shown in table 2.3, the average length of stay in PPS hospitals
with SNFs was shorter than the average length of stay in PPS
hospitals that did not have a SNF unit for all but 1 of the 12 DRGs
included in our analysis.  Lengths of stay ranged from 4 percent to
almost 14 percent shorter in hospitals with SNF units. 



                               Table 2.3
                
                  Average Length of Stay for Selected
                DRGs, for PPS Hospitals With and Without
                            SNF Units, 1994

                                                        Shorter length
                                                          of stay in
                                        Average length  hospitals with
                                           of stay           SNFs
                                        --------------  --------------
                                        Hospit  Hospit
                                           als     als
                                        withou    with
                                         t SNF     SNF          Percen
DRG\a                                    units   units    Days       t
--------------------------------------  ------  ------  ------  ------
001                                       10.7    10.3     0.4     3.7
014                                        7.7     7.2     0.5     6.5
113                                       13.3    12.0     1.3     9.8
209/491\b                                  7.6     7.0     0.6     7.9
210                                        9.5     8.5     1.0    10.5
211                                        7.3     6.5     0.8    11.0
217                                       13.1    11.6     1.5    11.5
218                                        6.6     6.0     0.6     9.1
236                                        7.0     7.7   (0.7)  (10.0)
253                                        6.2     5.7     0.5     8.1
263                                       13.3    11.5     1.8    13.5
271                                        8.9     7.9     1.0    11.2
----------------------------------------------------------------------
Note:  Discharges from Maryland were not included because that state
has a different hospital payment system. 

\a The DRGs are described in app.  II. 

\b In 1991, DRG 209 contained procedures involving both the lower and
upper extremities.  In 1992, DRG 491 was added, and procedures
involving the upper extremities were removed from 209 and assigned
this DRG.  In order to compare them with 1991, discharges for both of
these DRGs were combined from 1994. 

For the 12 DRGs analyzed, about 248,000 Medicare beneficiaries were
discharged to a SNF from a PPS hospital during fiscal year 1994. 
This represented about 23 percent of discharges from PPS hospitals
for these DRGs.  As shown in table 2.4, for beneficiaries discharged
to a SNF, the average length of stay for hospitals with SNFs was less
than that for hospitals without SNFs for each of the 12 DRGs.  The
differences ranged from 0.3 to 2.7 days. 



                               Table 2.4
                
                  Average Length of Stay for Patients
                  Discharged to a SNF for 12 DRGs, for
                 Hospitals With and Without SNF Units,
                                  1994

                                                        Shorter length
                                                          of stay in
                                        Average length  hospitals with
                                           of stay           SNFs
                                        --------------  --------------
                                        Hospit  Hospit
                                           als     als
                                        withou    with
                                         t SNF     SNF          Percen
DRG\a                                    units   units    Days       t
--------------------------------------  ------  ------  ------  ------
001                                       15.3    13.7     1.6    10.5
014                                       10.0     8.5     1.5    15.0
113                                       12.3    11.7     0.6     4.9
209/491\b                                  8.4     6.6     1.8    21.4
210                                        9.2     7.9     1.3    14.1
211                                        7.2     6.0     1.2    16.7
217                                       15.4    12.7     2.7    17.5
218                                        8.3     6.8     1.5    18.1
236                                        7.0     6.7     0.3     4.3
253                                        6.7     5.8     0.9    13.4
263                                       14.1    11.4     2.7    19.1
271                                        9.8     7.8     2.0    20.4
----------------------------------------------------------------------
Note:  Discharges from Maryland were not included because that state
has a different hospital payment system. 

\a The DRGs are described in app.  II. 

\b In 1991, DRG 209 contained procedures involving both the lower and
upper extremities.  In 1992, DRG 491 was added, and procedures
involving the upper extremities were removed from 209 and assigned
this DRG.  In order to compare them with 1991, discharges for both of
these DRGs were combined for 1994. 


--------------------
\1 Each DRG includes one or more diagnoses that are expected to
require about the same level of hospital resources to treat.  A
hospital receives the same payment amount for all cases that fall
into an individual DRG. 


PATIENTS AND SERVICES APPEAR
SIMILAR IN SNFS WITH AND WITHOUT
EXCEPTIONS
============================================================ Chapter 3

Because SNFs with exceptions are supposed to be furnishing atypical
services, they might be expected to have a higher proportion of
patients requiring more nursing assistance or more complex care than
SNFs without exceptions.  However, in the four states we studied, we
found no substantive differences between the characteristics of, and
services received by, Medicare patients residing in SNFs granted
exceptions and those in SNFs that did not receive exceptions.  For
example, we found no substantive differences in patients' ability to
perform activities of daily living (ADL), the types of patient
diagnoses, or the frequency with which certain types of treatments
and therapies were administered. 

PRO reviewers found that patients in the five SNFs with exceptions
that we visited generally received appropriate care--that is, the
right care at the right time.  They did find instances in which
inappropriate care had been furnished in several of the SNFs granted
exceptions.  However, except for one case, no adverse outcomes
resulted. 


   DESPITE DIFFERENT SNF PAYMENT
   RATES, PATIENT CHARACTERISTICS
   APPEAR SIMILAR BETWEEN THE TWO
   GROUPS
---------------------------------------------------------- Chapter 3:1

Although HCFA intends that exceptions be granted only to SNFs that
care for patients requiring atypical services, when comparing SNFs
with exceptions and those without, we found little difference in
either the Medicare patients themselves or the services they were
provided.\8 For example, we found no substantive difference between
the two groups of SNFs in terms of (1) patients' ability to perform
activities of daily living, (2) patients' diagnoses, (3) patients'
cognitive status, or (4) patients' prior nursing home stays. 


--------------------
\8 HCFA considers costs associated with providing care to
non-Medicare patients in Medicare-certified beds as well as those
associated with caring for Medicare patients when evaluating the
SNF's application for an exception.  However, we limited our analysis
to only Medicare patients. 


      PATIENTS IN BOTH GROUPS WERE
      SIMILAR IN SEVERAL
      CHARACTERISTICS WE EXAMINED
-------------------------------------------------------- Chapter 3:1.1

When comparing data about the characteristics of residents in SNFs
that received exceptions and SNFs that did not, we found that
facilities in both groups care for some Medicare patients who
required complex care.  However, we found no substantive differences
between these groups of facilities in a number of areas that may
reflect the overall complexity of patient care needs.  (See app.  IV
for the results of certain patient characteristics we analyzed.)
Furthermore, during their review of medical records of a sample of
patients in the five SNFs with exceptions we visited, PRO reviewers
found that a majority of patients in three SNFs sampled did not need
complex or intense care, while half of the patients sampled in the
other two SNFs did require more complex or intense care. 


         ACTIVITIES OF DAILY
         LIVING
------------------------------------------------------ Chapter 3:1.1.1

We analyzed ADLs because they are a measure of patient need and the
facility resources required to meet those needs.\9 Lower ADL scores
indicate patients with relatively fewer needs for assistance compared
with patients with higher ADL scores.  In each of the states we
studied, according to the MDS data, patients in SNFs with exceptions
and those in SNFs without exceptions had, on average, similar
abilities to perform ADLs.  For example, as figure 3.1 shows,
patients in both groups of SNFs in Missouri had ADL scores of about
12, on average.\10 Missouri SNFs with exceptions' individual facility
ADL scores ranged from 8 to 12.  Missouri SNFs without exceptions had
a median ADL score of 12, with 10 percent of the SNFs with exceptions
having ADL scores of 10 or lower and 10 percent having ADL scores of
14 and higher.  (See app.  IV for information about patient ADLs in
the other three states we analyzed.)

   Figure 3.1:  Median Patient ADL
   Scores in Missouri SNFs, 1994

   (See figure in printed
   edition.)


--------------------
\9 For the collection of resident assessment data, the Minimum Data
Set (MDS) instrument directs the rater to measure the patient's
ability to perform various activities using a numerical scale, which
increases with the patient's need for assistance.  We analyzed the
sum of patient ADL scores for four types of activities:  bed mobility
(the patient's ability to reposition himself or herself in bed),
transfer (the patient's ability to move from a wheelchair to a bed,
for example, or into and out of an armchair), toilet use, and eating. 

\10 Patients in two of the six Missouri SNFs with exceptions had
lower average ADL scores than those of patients in most Missouri SNFs
without exceptions. 


         DIAGNOSIS-RELATED GROUPS
------------------------------------------------------ Chapter 3:1.1.2

To obtain information about diagnoses, we analyzed 1992 and 1994 data
from HCFA's Medicare provider analysis and review (MEDPAR) database,
classifying the SNF patients into DRGs using software developed for
HCFA for hospital prospective payment.\11 We found few differences
between the two groups of SNFs.\12 For example, in 1994 the most
common DRG for patients in both groups of Ohio SNFs was fractures of
the hip and pelvis.  Table 3.1 shows, for each group of Ohio SNFs,
the five most common DRGs.  (DRG information for the other three
states, and for the nation as a whole, is in app.  IV.)



                         Table 3.1
          
             Five Most Common DRGs of Ohio SNF
                       Patients, 1994

                    DRG name (percentage of total Medicare
                                  patients)
                    --------------------------------------
Rank, measured by
frequency of DRG    SNFs with           SNFs without
occurrence          exceptions          exceptions
------------------  ------------------  ------------------
1                   Fractures of the    Fractures of the
                    hip and pelvis      hip and pelvis
                    (10.0%)             (9.8%)

2                   Specific            Specific
                    cerebrovascular     cerebrovascular
                    disorders other     disorders other
                    than transient      than TIA\ (8.2%)
                    ischemic attack
                    (TIA)\a (8.8%)

3                   Diabetes, over age  Rehabilitation
                    35 (5.8%)           (6.0%)

4                   Heart failure and   Heart failure and
                    shock (4.5%)        shock (5.0%)

5                   Chronic             Diabetes, over age
                    obstructive         35 (4.9%)
                    pulmonary disease
                    (4.2%)
----------------------------------------------------------
\a Temporary interference with the blood supply to the brain that
causes neurological symptoms lasting only a few moments or several
hours. 


--------------------
\11 The DRG software was developed for hospital patients rather than
SNF patients.  However, applying this classification scheme to the
SNF MEDPAR data provided an understanding of the types of diseases
and related needs of patients that the two groups of SNFs are caring
for--SNF patients have to have received hospital care and be admitted
to the SNF for a condition related to that care. 

\12 Diagnosis information alone often does not indicate the severity
of a patient's condition. 


         RESOURCE UTILIZATION
         GROUPS
------------------------------------------------------ Chapter 3:1.1.3

Higher nursing costs as a result of providing atypical services are
the foremost reason HCFA cites in granting exceptions.  As a result,
it might be expected that patients in SNFs granted an exception would
need--and the SNF would provide--more nursing care.  To obtain
additional information about patients' need for nursing care in SNFs
with and without RCL exceptions in Maine and Ohio, we estimated the
nursing resources patients require. 

We used HCFA's Resource Utilization Group, version III (RUG-III)
model, a model for sorting nursing home residents into like groups
according to common health characteristics and the amount and type of
resources they use, to evaluate each patient's nursing resource
need.\13 RUG-III considers patient characteristics, such as whether
the patient is in a coma or has pneumonia, as well as services
provided to the patient, such as kidney dialysis or physical therapy,
and assigns the patient to 1 of 44 categories depending on the
nursing resources that patient requires.\14 Each category has a
number, or score, associated with it, providing a relative measure of
resource use compared with other categories.  For example, a patient
who has complex health problems requiring more nursing care would be
placed in a higher category, and given a higher score, signifying
more resources required, than a patient who has simpler health
problems and requires less nursing care. 

When we analyzed the results of the RUG-III estimates, we observed
that in Ohio, the distribution of Medicare patients among the
categories was similar in SNFs with exceptions and in SNFs
without.\15 And, unexpectedly, in Maine the SNFs with exceptions had
patients requiring fewer nursing resources when compared with
patients in SNFs without exceptions.  (See app.  IV for additional
information regarding the results of the RUG-III analysis.)

In addition to calculating RUG-III scores for each patient, we used
the results of the RUG-III patient analysis to calculate each
facility's case-mix index score--the average amount of nursing
resources required to care for the facility's overall patient
population.  In both Maine and Ohio, we found the case-mix scores to
be similar when comparing each state's SNFs with exceptions with its
SNFs without exceptions.\16 For example, as figure 3.2 shows, the two
groups of SNFs in Maine had case-mix scores of approximately 1.3,
indicating that the SNFs' patients had generally similar nursing
resource needs.  Similarly, figure 3.3 shows that the two groups of
Ohio SNFs had case-mix scores of about 1.4, indicating similar
nursing resource needs among their patients. 

   Figure 3.2:  Mean Case-Mix
   Scores of Maine SNFs, 1994

   (See figure in printed
   edition.)

   Figure 3.3:  Mean Case-Mix
   Scores of Ohio SNFs, 1994

   (See figure in printed
   edition.)

Both the RUG-III individual patient analysis and case-mix index
scores indicate that there were patients in both SNFs with exceptions
and SNFs without exceptions that required intense or complex care. 
For example, in Ohio, 1.1 percent of patients in SNFs with exceptions
and 1.4 percent of patients in SNFs without exceptions were
determined to need the highest category of nursing resource use. 
And, also in Ohio, there were a few SNFs in both groups--one SNF with
an exception and several SNFs without exceptions--with overall
case-mix index scores of 1.6 and higher, indicating a relatively
larger proportion of patients with high nursing resource needs in
these SNFs. 


--------------------
\13 We selected the version of RUG-III that measures and classifies
data by overall nursing resources associated with each RUG category. 
Another version of RUG-III measures and classifies data by overall
nursing and therapy resources.  However, exceptions are not granted
for therapy and, therefore, this version was not relevant.  The
RUG-III model that we used requires data that are collected only
through the Minimum Data Set Plus (MDS+) instrument, an enhanced MDS
version that includes information not contained in the MDS. 
Consequently, we could only apply it to data from Maine and Ohio, the
two states in our analysis using the MDS+. 

\14 HCFA currently is conducting a demonstration in which it uses
RUG-III data to determine prospective Medicare and Medicaid payments
for certain nursing homes in states participating in the
demonstration. 

\15 Because the RUG-III model considers both patient characteristics
and the facility resources involved in caring for them when sorting
the patients into the various categories, this might be considered
both a measure of patient characteristics and services provided. 

\16 This amount, represented by the facility's case-mix index score,
is determined by calculating the average RUG-III score for patients
in that facility.  A facility caring for sicker patients--those with
higher RUG-III scores--will have a higher case-mix index score than a
facility caring for less sick patients, signifying more nursing
resources required. 


         OTHER PATIENT
         CHARACTERISTICS
------------------------------------------------------ Chapter 3:1.1.4

MDS data also showed no substantive differences in patients'
cognitive status, a measure of the patients' ability to make
decisions about the tasks or activities of daily living, such as
choosing items of clothing or determining mealtimes.  Nor did the
data show any substantive difference between SNFs with and without
exceptions in the number of patients with a prior stay in a nursing
home or other residential facility, a measure that may indicate those
patients with a history of poor health.  In each of the four states
we studied, patients in both groups of SNFs were similar when
measured across both of these elements.\17 (See app.  IV for
additional information regarding these and other patient
characteristics we analyzed.)


--------------------
\17 We did observe a small difference between the two groups of SNFs
when we compared patient ages.  In analyzing 1992 national MEDPAR
data and 1994 MEDPAR data for the four states whose MDS data we
analyzed, we found that patients in SNFs with exceptions were younger
than patients in SNFs without exceptions.  However, the difference
was slight--1 to 2 years.  App.  IV contains further information on
patient ages for the SNFs we reviewed nationwide in 1992 and for SNFs
in four states in 1994. 


         PRO REVIEWS
------------------------------------------------------ Chapter 3:1.1.5

We asked the PROs, as part of their medical record review, to
evaluate the health care needs of a sample of 20 patients identified
as having or likely having complex care needs by SNF staff in each of
the five SNFs with exceptions we visited.  The PRO evaluations were
based on a five-point scale, with one representing the needs of a
typical skilled nursing facility patient and five being the needs of
a typical acute-care hospital patient.  In three SNFs, all or almost
all of the patients reviewed were judged to have the health care
needs of a typical SNF patient, and, in fact, several patients in two
of these SNFs were judged not to require SNF care at all.  In the two
remaining SNFs, half the patients reviewed were judged to have needs
greater than those of a typical SNF patient. 


   SERVICES PROVIDED TO PATIENTS
   APPEAR SIMILAR BETWEEN THE TWO
   GROUPS
---------------------------------------------------------- Chapter 3:2

SNFs with exceptions receive that status because they have documented
to HCFA's satisfaction that they furnish patients atypical services. 
However, in the four states we studied, we found that the percentage
of patients receiving certain special treatments, such as ventilator
care, and certain therapies, such as physical therapy, was generally
similar in SNFs with exceptions and SNFs without.  Furthermore, the
typical amount of therapy given to the patients in each group of SNFs
was generally similar.\18 During our five site visits to SNFs with
exceptions, we found that staffing of nursing and therapy services as
well as physician coverage varied. 


--------------------
\18 Although the costs of ancillary services--which include therapy
charges--are not considered routine costs and are excluded from
HCFA's routine cost limit.  HCFA uses these costs as an indicator of
atypical services. 


      FACILITIES IN BOTH GROUPS
      PROVIDED SIMILAR SERVICES
-------------------------------------------------------- Chapter 3:2.1

We analyzed MDS data about special treatments and therapies, items
that could be indicative of different levels of SNF resource use. 
Generally, we found no substantive differences in the type and
intensity of these services in SNFs with exceptions and in those
without.  (See app.  IV for the results of certain facility service
characteristics we analyzed.)


         SPECIAL TREATMENTS
------------------------------------------------------ Chapter 3:2.1.1

The percentage of patients receiving certain treatments and
procedures, such as suctioning\19 and ventilator care, appeared
similar in both groups of facilities.  For example, as figure 3.4
shows, generally less than 5 percent of patients in each group of
Ohio SNFs received suctioning.  (See app.  IV for additional
information regarding special treatments.)

   Figure 3.4:  Percentage of Ohio
   SNF Patients Receiving
   Suctioning, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The 10th percentile value for SNFs without
exceptions was zero. 


--------------------
\19 Suctioning is the removal of fluids from the throat or lungs by
mechanical means. 


         THERAPIES
------------------------------------------------------ Chapter 3:2.1.2

The percentage of patients receiving therapies, such as speech,
occupational, and physical therapy, appeared similar in both groups
of facilities in all four states.  For example, as figure 3.5 shows,
generally less than 20 percent of patients in each group of Maine
SNFs received speech therapy.  Likewise, the number of days of
therapy patients received appeared similar.  As shown in figure 3.6,
patients in each group of Washington SNFs received about 10 days of
therapy, on average.\20 We also analyzed Maine and Ohio data
regarding minutes of therapy provided and generally found no
differences between the two groups.\21 (See app.  IV for additional
information regarding therapies.  Also, see app.  IV for a listing of
other variables analyzed.)

   Figure 3.5:  Percentage of
   Maine SNF Patients Receiving
   Speech Therapy, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The 10th percentile value for SNFs without
exceptions was zero. 

   Figure 3.6:  Median Number of
   Days of Therapy Received by
   Washington SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  Types of therapies include speech, occupational, physical,
psychological, and respiratory. 


--------------------
\20 Figure 3.6 aggregates all types of therapy--speech, occupational,
physical, psychological, and respiratory--given in 1 week.  Thus, the
sum of therapy days may be greater than 7. 

\21 Of the states whose data we examined, only Maine and Ohio
collected information on minutes of therapy provided. 


      OTHER CHARACTERISTICS
-------------------------------------------------------- Chapter 3:2.2

MDS, MEDPAR, and other nationally available databases did not contain
information about staffing, training, and other areas you were
interested in, such as nursing care, therapy services, and physician
coverage.  Therefore, to provide information about these issues, we
can only describe our observations during our site visits to five
SNFs with exceptions.  These observations cannot be assumed to be
representative of SNFs in general. 


         NURSING CARE
------------------------------------------------------ Chapter 3:2.2.1

According to officials at the SNFs we visited, SNFs attempt to staff
according to the complexity or intensity of the patients' needs.  For
example, patients with more complex needs require more licensed
nursing care; thus, a higher licensed-nurse-to-patient ratio is
desirable.\22 Patients with less complex needs might allow SNFs to
staff with more certified nurse assistants and fewer licensed nurses. 
However, other factors, such as financial constraints or inability to
recruit qualified personnel, may influence staffing ratios. 
Licensed-nurse-to-patient staffing ratios reported by SNF officials
varied considerably among the five SNFs we visited.  For example,
daytime licensed-nurse-to-patient ratios ranged from 1:6 to 1:15;
nighttime licensed nursing ratios ranged from 1:18 to 1:31.  (See
app.  IV for information on nurse staffing levels.) The SNF with the
lowest daytime licensed-nurse-to-patient staffing ratio, according to
officials at the SNF, had adopted a system under which registered
nurses performed most patient care tasks because the SNF had
difficulty finding and retaining qualified nurse aides. 

Officials at most of the SNFs we visited said they preferred to have
nurses with hospital experience on their staff to care for patients
with complex medical needs.  Hospital acute-care experience--as
opposed to only long-term care experience--gives nurses the requisite
skill and training to provide appropriate care to patients with
complex needs, according to these officials.  We did not determine
the number of nurses with acute-care experience at each SNF we
visited.  However, many of the nursing staff at one SNF--which had a
predominantly orthopedic patient population--had acute-care
experience, and several of the nursing staff at this SNF were in the
process of securing recognition as certified registered
rehabilitation nurses.  We also found that most of the SNFs had
established on-the-job training programs for their nursing staffs to
maintain and increase their skills. 


--------------------
\22 Licensed nurses include registered nurses as well as licensed
practical nurses. 


         THERAPY STAFF
------------------------------------------------------ Chapter 3:2.2.2

All the SNFs we visited provided physical, occupational, and speech
therapies, and three of them also performed respiratory therapy.  As
estimated by SNF officials, the percentage of Medicare patients in
each SNF receiving therapy varied widely, from a low of 40 percent in
one SNF to almost 90 percent in another. 

SNFs attempt to provide the number and type of therapists--such as
physical or occupational therapists--appropriate to their patients'
needs.  The SNFs we visited predominantly contracted with outside
vendors for therapists and therapy aides, with only one facility
using mostly in-house staff. 

Following is an example of how one SNF uses therapy services to meet
its patients' needs.  Therapy services in this SNF are available 7
days a week, but not all patients receive therapy on weekends.  Most
patients receive at least 1 hour of physical therapy and 1 hour of
occupational therapy each day, as well as participate in an exercise
group.  On average, complex care patients receive about 2-1/2 hours
of total therapy per day.  All patients are screened for speech
therapy.\23


--------------------
\23 Additional resources this SNF has in place to support
higher-level care include a full-time dietician on staff to support
fluid stabilization and wound care programs, and a multidisciplinary
wound care team that does weekly rounds. 


         PHYSICIAN COVERAGE
------------------------------------------------------ Chapter 3:2.2.3

According to experts, aside from physicians acting in administrative
capacities as medical directors, SNFs generally do not have
physicians on staff.  As in hospitals, SNF patients have their own
attending physicians who direct their care.  However, unlike hospital
patients, most SNF patients' conditions generally do not require a
daily physician visit.  As a result, physicians often rely on SNFs'
nursing staffs to keep them informed of the patients' conditions. 
One SNF we visited arranged for more physician coverage through an
agreement with nearby hospitals under which the hospitals provided
physicians to follow up on SNF patients, seeing them two or three
times a week. 

In three of the five SNFs we visited, some staff expressed concern
that physicians did not visit their patients as frequently as they
should, particularly the sicker patients.  One SNF medical director
expressed concern that physicians were relying on nurses to notify
them of their patients' conditions rather than visiting the patient,
which she believed may be inappropriate for sicker patients.  At
another SNF we visited, a staff person indicated that some attending
physicians failed to visit their SNF patients in person or oversee
their care at the facility. 


   PRO REVIEW FOUND CARE TO BE
   GENERALLY APPROPRIATE
---------------------------------------------------------- Chapter 3:3

PRO physician reviewers found that the services provided at the five
SNFs with exceptions we visited were almost always appropriate to the
patients' needs for those cases reviewed.  However, several problems
with quality of care, such as errors in administering medication and
delays in contacting physicians when problems arose, were identified
during the review of medical records collected at the SNFs we
visited.  Except for one patient who required hospital outpatient
treatment as a result of a quality problem the PROs identified, no
other adverse outcomes resulted from the problems noted. 

In reviewing the medical records of 100 SNF patients (20 patients at
each facility) identified by SNF staff as needing complex care, the
PROs found the following quality problems:\24

  -- five instances of medication errors;

  -- three instances of delays in contacting a physician upon change
     in patient's condition;

  -- two instances of not notifying a physician upon a change in a
     patient's condition;

  -- two instances of falls, indicating a failure to develop a system
     to assess patients with an increased risk of falling and to
     implement preventive measures; and

  -- one instance of failure to provide necessary treatment. 

Furthermore, the PROs noted 55 instances in which documentation of
the patient's condition or progress was inadequate or inconsistent. 
Generally, reviewers assume that care not documented was not
furnished. 

Following are some specific examples of problems identified by the
PROs.  For one SNF, failure to follow medically prescribed procedures
resulted in a complication.  Physician orders instructed SNF staff to
irrigate on a weekly basis a patient's central venous catheter.  The
PRO reviewers found that this procedure was not followed.  As a
result, problems with the catheter developed, and the patient was
sent to the hospital for outpatient care. 

At another facility a patient was given twice the ordered dosage of
medication for at least a week before the error was noticed and the
physician notified.  In yet another facility, the issue of physician
notification was raised after abnormal laboratory test results were
returned but the physician was not informed until 3 days later. 


--------------------
\24 PRO reviewers used the HCFA generic quality screens for SNFs to
identify quality problems.  (See app.  V for a copy of the screening
instrument.) Problems were identified at four of the five SNFs we
visited.  More than one problem might have been identified for each
patient.  We did not perform a similar review of the appropriateness
of care provided to patients in SNFs without exceptions. 


STANDARDS FOR EVALUATING REQUESTS
FOR RCL EXCEPTIONS ARE INADEQUATE
============================================================ Chapter 4

The number of SNFs granted exceptions to routine cost limits (RCL) is
growing rapidly, with exception approvals increasing from 184 to 552
from fiscal year 1993 to fiscal year 1995.  The extra payments
associated with these approvals also increased from $35 million in
fiscal year 1993 to $98 million in fiscal year 1995.  However, HCFA's
exception review process is not adequate for discerning SNFs that
have higher costs because they furnish atypical services, and thereby
qualify for an exception, from SNFs that have higher costs for other
reasons, such as inefficiency.  The primary reasons for this
situation are that benchmarks used to screen for exception
eligibility rely almost entirely on a SNF's proportion of Medicare
patients, and patient-specific information submitted by SNFs on
Medicare patients is not used.  In effect, if a nursing home can
demonstrate it has a higher than average proportion of Medicare
patients and high costs, it can receive an exception to the RCL,
which in turn defeats the cost-control incentives of RCLs. 


   NUMBER OF SNFS WITH EXCEPTIONS
   IS GROWING
---------------------------------------------------------- Chapter 4:1

From the time RCLs were first established in 1979 through fiscal year
1992, a total of only 80 exceptions were granted.  More than twice as
many were granted in fiscal year 1993 alone, and more than 550 were
granted in fiscal year 1995 (see table 4.1).  Moreover, HCFA and
industry officials expect that the number of exception requests and
approvals is likely to continue to grow, and data in table 4.1
covering part of fiscal year 1996 suggest this will happen. 



                         Table 4.1
          
          Number of Exceptions Approved, by Fiscal
                            Year

                          Number of exceptions approved
                        ----------------------------------
                         Hospital-  Freestandi
Fiscal year                  based          ng       Total
----------------------  ----------  ----------  ----------
Before 1993\a                   25          55          80
1993\a                          96          88         184
1994                           188         148         336
1995                           302         250         552
1996\b                         177         430         607
==========================================================
Total                          788         971       1,759
----------------------------------------------------------
\a Because HCFA's data are incomplete for these years, the number of
approved exceptions may be somewhat understated. 

\b As of late July 1996, HCFA had recorded approvals of 417
exceptions during fiscal year 1996.  As of June 30, 1996, the six
intermediaries with final approval authority had approved another 190
exceptions during fiscal year 1996. 

Although data for fiscal year 1996 are based on part of the year,
these data indicate a continued increase in approvals.  During
approximately the first 10 months of fiscal year 1996, HCFA approved
417 exceptions, which would be worth about $70 million to the SNFs. 
In addition, the six intermediaries with final approval authority
approved 190 exceptions during the first 9 months of fiscal year
1996, which were worth about $29 million to the SNFs.  If these
trends continue, approved exceptions by all intermediaries during
fiscal year 1996 could total about 750 and cost the Medicare program
about $120 million. 

Besides the fact that SNFs that receive exceptions in one year are
likely to continue receiving exceptions, another factor that could
continue the trend to more exceptions in the future is the number of
exemptions to RCLs currently in effect.  Historically, over 20
percent of SNFs with new provider exemptions received exceptions
after their exemption period ended.  As of September 30, 1995, 2,422
SNFs had obtained exemptions from RCLs since 1979.  More than 80
percent of the 2,422 exemptions were approved after fiscal year 1989,
with 35 percent of the exemptions (846) approved during fiscal years
1994 and 1995.  Thus, over the next few years, a substantial number
of SNFs will be completing their RCL exemption periods and likely
will be requesting exceptions. 


   EXCEPTION BENCHMARKS NOT
   RELATED TO ATYPICAL SERVICES
---------------------------------------------------------- Chapter 4:2

The first step a SNF must take to gain an exception to the RCL is to
demonstrate that it meets at least one of three benchmarks
established by HCFA.  The benchmarks are as follows: 

  -- The SNF has a shorter length of stay than the average of its
     peer group.  Shorter lengths of stay can indicate, for example,
     that services are furnished more intensively so patients can be
     released sooner. 

  -- The SNF has higher average ancillary costs per day than its peer
     group.  Higher ancillary costs can indicate, for example, that
     the SNF treats a higher proportion of patients needing
     rehabilitation services or drug infusion therapy. 

  -- The SNF treats a higher proportion of Medicare patients than its
     peer group.  As the ratio of Medicare to total patients rises,
     SNF costs can grow because Medicare patients generally have more
     acute conditions in need of more health services than other
     patients, who often need more long-term and custodial care. 

Benchmarks are set on the basis of the average value of four peer
groups--rural and urban groups for both hospital-based and
freestanding facilities.  In establishing the peer group averages,
HCFA officials told us they used data on all patients (in
Medicare-certified units) in the SNFs, not just Medicare patients,
because Medicare's cost reimbursement method is designed to pay on
the basis of average costs of all patients in a SNF for routine
services, up to the RCL. 

However, Medicare patients are different from other nursing home
patients.  Medicare patients are admitted because they have been
discharged from a hospital but need continued care because of the
acute condition that resulted in the hospitalization.  Other patients
need long-term care for chronic conditions, which involves more
custodial-type care.  In effect, for most SNFs, the three benchmarks
all depend on the same factor--the percentage of a SNF's patients who
are Medicare beneficiaries.  Therefore, treating a higher proportion
of Medicare patients will usually get a SNF past the benchmarks, but
this does not mean the patients require atypical services.  The next
and final stage of the process as it operates only requires a SNF to
demonstrate that its costs are higher than its peer group.  The
process does not require a SNF to demonstrate that its costs are high
because atypical services are needed and furnished.  Therefore, SNFs
that are simply inefficient in their operations can gain RCL
exceptions. 

Tables 4.2, 4.3, and 4.4 give the benchmarks and actual Medicare
averages for length of stay, ancillary costs, and portion of
Medicare-covered days, respectively. 

Table 4.2 contains the peer group benchmarks for average length of
stay and the actual average for Medicare-covered SNF patients in
fiscal year 1994.  The average length of stay of Medicare patients is
so much less than the benchmark that it is unlikely this benchmark
can distinguish facilities that provide atypical services to Medicare
beneficiaries from facilities that do not.  Furthermore, each of the
four peer group benchmark values exceed the maximum Medicare benefit
of 100 days. 



                               Table 4.2
                
                    Peer Group Benchmark and Actual
                Medicare-Covered Patient Average Length
                       of Stay, Fiscal Year 1994

                            (Number of days)

                                          Hospital-
                                            based        Freestanding
                                        --------------  --------------
                                         Urban   Rural   Urban   Rural
--------------------------------------  ------  ------  ------  ------
Benchmark                                132.3   223.5   236.7   251.5
Actual for Medicare-covered patients      17.0    19.6    48.7    48.0
----------------------------------------------------------------------

Table 4.3 presents a similar comparison for ancillary costs.



                               Table 4.3
                
                    Peer Group Benchmark and Actual
                Medicare-Covered Patient Ancillary Costs
                       per Day, Fiscal Year 1994

                                          Hospital-
                                            based        Freestanding
                                        --------------  --------------
                                         Urban   Rural   Urban   Rural
--------------------------------------  ------  ------  ------  ------
Benchmark                               $62.73  $24.31  $32.71  $21.31
Actual for Medicare-covered patients    $142.6  $106.8  $108.4  $92.54
                                             7       9       1
----------------------------------------------------------------------
The actual peer group ancillary costs are so much larger than the
benchmarks that ancillary costs also are unlikely to be a good
indicator of whether a SNF provides atypical services to Medicare
patients.  The actual average costs range from 2.3 to 4.4 times the
benchmarks.  A primary reason for these differences in costs is that
Medicare patients are different from most other patients in nursing
homes.  Medicare patients typically have been recently discharged
from hospitals after treatment for acute conditions.  The majority of
non-Medicare patients in nursing homes are Medicaid patients with
chronic conditions and long-term and custodial care needs.  Thus,
basing a benchmark on the ancillary costs for all patients produces a
benchmark that does not adequately distinguish facilities that do
provide atypical services to Medicare patients from those that do
not. 

A comparison based on the third benchmark, proportion of Medicare
patients, is shown in table 4.4. 



                               Table 4.4
                
                    Peer Group Benchmark and Actual
                Percentage of Medicare-Covered Patients,
                            Fiscal Year 1994

                          (Numbers in percent)

                                          Hospital-
                                            based        Freestanding
                                        --------------  --------------
                                         Urban   Rural   Urban   Rural
--------------------------------------  ------  ------  ------  ------
Benchmark                                 52.4    32.7    25.7    23.7
Actual for Medicare-covered patients      36.1    18.2    17.5    19.2
----------------------------------------------------------------------
This benchmark is of little or no value in identifying facilities
that provide atypical services.  For example, in fiscal year 1994,
Medicare patients made up about 36 percent of the patients in
hospital-based urban nursing homes.  If a nursing home had a Medicare
population of, say, 60 percent (above the benchmark), this merely
indicates that the nursing home had an atypical population mix, not
that it was providing atypical services.  A nursing home could have a
low proportion of Medicare patients and provide atypical services to
every one of its Medicare patients. 

Furthermore, the benchmarks are out of date.  The benchmarks were
computed from data spanning the periods October 31, 1988, through
September 30, 1989, for hospital-based facilities and June 30, 1989,
through May 31, 1990, for freestanding facilities.  For each type of
facility, the base data included substantial time under the Medicare
Catastrophic Coverage Act of 1988 coverage criteria, which, as
discussed, substantially liberalized Medicare coverage criteria for
SNFs.  The benchmarks, then, were computed on data representing an
atypical year in the number and type of Medicare patients who were
admitted to SNFs. 


      PATIENT-SPECIFIC INFORMATION
      NOT USED
-------------------------------------------------------- Chapter 4:2.1

Data describing patient characteristics submitted as part of an
exception request generally are not used in the exception review
process.  Transmittal 378 requires SNFs to submit patient data,
showing patients' diagnoses and ability to perform ADLs, for a random
sample of all patients treated at their facilities.  Although
Transmittal 378 requires a random sample, HCFA officials told us that
they have verbally communicated to various intermediary and SNF
officials that they expect the SNF to submit clinical data for all
patients treated during the year for which an exception is requested. 
None of the intermediaries we visited knew of HCFA's expectation. 

Transmittal 378 says the intermediary should use the patient-specific
data to determine whether the nursing staff level of a SNF is
excessive, and if so, the intermediary should adjust the SNF's costs
before comparing the costs to the peer group.  A HCFA official told
us that HCFA expects the intermediaries to follow the instructions in
Transmittal 378 and evaluate whether the nursing staff level of a SNF
is excessive.  He told us that HCFA expected the intermediaries'
professional health staff to make decisions on excessive staffing
levels, although HCFA has provided no specific criteria to judge
whether nursing staff levels are excessive.  Although 3 of the 10
intermediaries visited told us that they used patient-specific data
in their review of exception requests, none of the 10 had ever
referred a request to its professional health staff for an opinion on
the appropriateness of nursing staff levels. 

Officials at two of the three intermediaries using patient-specific
data told us that HCFA had verbally told them to verify that the ADL
scores of the applicant's patients are higher than the ADL scores
presented in a 1985 national survey of nursing home populations.  An
intermediary official told us that higher ADL scores indicate a need
for additional nursing personnel.  An official at a third
intermediary we visited told us that, although the intermediary
received no guidance from HCFA, it requires a SNF applying for
exception to clarify its ADL data by interpreting in writing how its
ADL data demonstrate that the SNF is providing atypical services. 

HCFA's Transmittal 378 also requires SNFs to submit a listing of the
discharge destination for all patients.  Officials for all 10
intermediaries we visited told us they verify that this information
is submitted, but because HCFA has not provided any criteria to
determine its significance, they do not use this information when
reviewing an exception request.  HCFA officials told us the discharge
data should show a large number of patients going home if the SNF is
atypical.  However, they told us that there are no plans to establish
a benchmark for discharge data because setting such a benchmark for
the number or percentage of patients discharged to their homes would
be difficult. 


CONCLUSIONS, RECOMMENDATION, AND
AGENCY COMMENTS
============================================================ Chapter 5

The use of SNF services by Medicare beneficiaries and Medicare's
payments for these services have grown dramatically during the 1990s. 
One reason for this growth is that Medicare guidelines for when SNF
services are covered were liberalized in 1988 in response to a court
decision.  Another reason is that some substitution of SNF care has
occurred for what in the past would have been the last few days of
hospital care.  This was an expected result of Medicare's hospital
PPS. 

The number of SNFs requesting exceptions to the RCL has grown rapidly
and is expected to continue to grow.  Over 500 requests were
processed and approved in 1995, and as many as 750 may be processed
in 1996.  Almost all exception requests claim that routine costs are
higher than the RCL because the SNF provides atypical services. 
However, HCFA's current screening benchmarks for exception requests
are unlikely to differentiate between SNFs that provide atypical
services and those that do not.  Moreover, the patient-specific
information submitted with exception requests is not used to evaluate
them.  Thus, if a SNF can show that its costs are higher than the
RCL, it will receive an exception without demonstrating that it does,
in fact, furnish atypical services. 

Our analysis of four states' Medicare patients in SNFs with and
without exceptions found

  -- virtually the same ADL scores for patients in both groups of
     SNFs;

  -- no substantive differences in the patients' diagnoses;

  -- RUG-III scores that indicated a need for the same level of
     nursing resources to treat both groups of patients; and

  -- similar amounts of therapy and special treatments. 

Moreover, despite the fact that SNFs with exceptions were expected to
have sicker patients, PRO review of 100 patients identified as
requiring complex care by staff in the SNFs we visited showed that
all or almost all patients in three of five SNFs were typical SNF
patients.  Only half of the selected patients in the other two SNFs
needed complex care.  PRO review did find that services furnished to
the selected patients were almost always appropriate to patients'
needs. 

Weaknesses in HCFA's exception request review process make it
unlikely that it limits exception approvals to SNFs furnishing
atypical routine services and likely that SNFs will receive approval
for merely showing higher than normal costs.  Our analyses of SNF
patient characteristics also showed no significant difference between
patients in SNFs with and without RCL exceptions, giving further
evidence that HCFA's review process is not working as intended. 


   RECOMMENDATION
---------------------------------------------------------- Chapter 5:1

The Secretary of HHS should direct the Administrator of HCFA to
revise the SNF exception to the RCL review process so that it can
differentiate between SNFs that furnish atypical routine services to
Medicare patients and SNFs that merely have higher than normal costs. 
Looking at factors that reflect Medicare patients rather than all SNF
patients occupying Medicare-certified beds might be one way to do so. 
Using patient-specific data, some of which are currently submitted
but not used, might be another way. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 5:2

In commenting on a draft of this report, HHS generally agreed with
our recommendation to revise the exception review process to enable
HCFA to better differentiate between SNFs that furnish atypical
services and those that merely have higher costs.  Specifically, HHS
concurred with our suggestion to expand the use of patient-specific
data in the review process.  HHS said that HCFA's ongoing SNF payment
method demonstration project using the RUG-III classification system
will provide the data necessary to cost-out atypical services and
items and begin to integrate patient-specific data into the exception
process. 

However, HHS disagreed with our suggestion that looking at factors
that pertain to Medicare patients rather than all SNF patients might
be one way to enhance the exception review process.  HHS said this
suggestion failed to take into account the fact that Medicare
patients are often the most resource-intensive patients a SNF treats
and that the proportion of Medicare patients in a SNF is a valid
indicator of case mix.  HHS added that the RCLs are based on the
average cost of all patients and that use of data on only Medicare
patients would be inappropriate. 

We discuss in the report the differences between Medicare and other
SNF patients and the rationale for using data on all patients in
establishing the benchmarks used in evaluating exception requests. 
We did not recommend that HCFA substitute data on only Medicare
patients for the current benchmark.  Rather, we recommended that HCFA
look at such data as one way to revise the process and give exception
request reviewers additional data upon which to base decisions.  We
envision that the data could be a useful supplement to the existing
process to help differentiate between SNFs furnishing atypical
services and those that merely have higher costs.  For this reason,
we do not believe that our suggestion would be inconsistent with
Medicare's principles of cost reimbursement. 

HHS also disagreed with our suggestion to look at data on only
Medicare patients because the suggestion was derived from what HHS
considers to be a methodological flaw in our analysis of SNF
patients.  HHS considers the methodology flawed because it compared
only Medicare patients in SNFs with exceptions with Medicare patients
in SNFs without exceptions, which does not consider HCFA's proxy for
case mix--the facility's percentage of Medicare patients.  First, our
suggestion was based primarily on our review of HCFA's exception
process discussed in chapter 4.  We found that in general the only
factor that affected a determination of whether a facility met the
atypical services criterion was its proportion of Medicare patients,
but a higher than average proportion in itself does not mean a SNF
furnishes atypical services.  Thus, we recommended that the review
process be revised and suggested several types of information that
might be useful to differentiate SNFs that furnish atypical services
from those that merely have higher than normal costs.  Second, as
stated in chapter 1's scope and methodology section, our analysis of
SNF patients was designed to answer questions about the
characteristics of and services received by Medicare patients in
facilities with and without RCL exceptions.  The analysis is valid
for these purposes.  Moreover, we would expect that at least some
differences between patients in the two SNF groups would be shown by
such an analysis, and the fact that no differences emerged lends
additional support to our suggestion to look at using Medicare-only
data during the exception review process. 

HHS also noted that, in concert with the Congress, it is working on
development of a PPS for SNFs that is expected to be sensitive to a
facility's case mix.  HHS believes that such a payment method would
eliminate the need for an exception process.  A SNF PPS that is
sensitive to case mix might lessen the need for an exception process,
but we suspect that some exception-type process would remain either
for individual cases or facilities.  Prospective payment methods
generally retain such features.  For example, Medicare's inpatient
hospital PPS provides for paying sole community hospitals differently
because of their special circumstances and provides a way for
hospitals to receive additional payments for outlier cases that are
extremely costly. 


THE SKILLED NURSING FACILITY
EXCEPTION PROCESS
=========================================================== Appendix I

This appendix details the process SNFs must follow to request
exceptions to the routine cost limits (RCL) Medicare has established
for providers.  Included is information on the authorizing and
subsequent legislation and description of the process itself,
including the responsibilities of SNFs, intermediaries, and the
Health Care Financing Administration (HCFA). 


   BACKGROUND
--------------------------------------------------------- Appendix I:1

Section 223 of the Social Security Amendments of 1972 (P.  L. 
92-603, Oct.  30, 1972) authorized Medicare to establish limits on
the amount of costs it would recognize as reasonable in the efficient
delivery of health services.  The purpose of cost limits is to give
providers a financial incentive to contain their costs because they
will not be reimbursed for costs above the limit.  Effective for
cost-reporting periods beginning on or after October 1, 1979, HCFA
established such limits for the routine operating costs of SNFs,
which are known as RCL.  Routine operating costs include those for
room, board, and general nursing and the general and administrative
costs associated with those three cost categories.  Routine costs do
not include costs for capital, ancillary services, outpatient
services, and research at the SNF. 

Section 1888(a) of the Social Security Act, which was added by
section 2319 of the Deficit Reduction Act of 1984 (P.  L.  98-369,
July 18, 1984), specifies that SNF RCLs shall be based on the mean
per diem costs for four groups--hospital-based and freestanding SNFs
each located in urban and rural areas.  Section 4008 of the Omnibus
Budget Reconciliation Act of 1990 (P.  L.  101-508, Nov.  5, 1990)
provided that the RCLs be updated for cost-reporting periods on or
after October 1, 1992, and every 2 years thereafter.  The RCLs were
updated in 1992, but subsequent legislation delayed the update
schedule. 

Since RCLs were first established in 1979, the regulations governing
them have provided for granting RCL exceptions (42 C.F.R.  413.30),
and section 1888(c) of the Social Security Act, as added in 1984,
also authorizes exceptions.  A SNF can apply for an exception on any
of five bases,\1 but 98 percent of requests are for atypical
services.\2 The atypical services criterion is met when the SNF's
actual costs exceed its RCL during a cost-reporting period because
the SNF's Medicare patients needed atypical services.  SNFs
requesting exceptions generally claim that they are treating sicker
patients and providing more services and that as a result their costs
are higher than the RCLs. 

HCFA established an exception request process through which SNFs must
demonstrate that their costs are associated with atypical services
and exceed the RCLs.  Initially, HCFA did not have detailed
instructions for the exception request process.  In July 1994, HCFA
published Transmittal 378 to assist SNFs in preparing and submitting
exception requests and defining intermediaries' responsibilities. 

The exception request process is a complicated procedure including
much documentation, complicated cost allocations and justifications,
peer group cost comparisons, deadlines, interim or final exception
requests, resubmission rights, and appeal processes.  An overview of
the process a SNF must follow to get a final exception approved
follows.  This overview is not intended to represent the entire
process but to provide a sense of what is required of the SNFs, the
intermediaries, and HCFA before a final exception is granted. 


--------------------
\1 HCFA allows exceptions to its RCLs for five circumstances: 
atypical services, extraordinary circumstances, providers in areas
with fluctuating populations, medical and paramedical education, and
unusual labor costs. 

\2 Under regulations at 42 C.F.R.  413.30, atypical services are
items or services furnished because of the special needs of the
Medicare patients treated and that are necessary in the efficient
delivery of needed health care.  For example, a common claim by SNFs
seeking exceptions is that they have high nursing care costs. 


   GENERAL REQUIREMENTS AND
   PROCEDURES
--------------------------------------------------------- Appendix I:2

  -- The SNF must submit its exception request in writing with
     supporting documentation to the intermediary no later than 180
     days after the date of the intermediary's Notice of Program
     Reimbursement (NPR)\3 (the date that the SNF's cost report for
     the period is settled by the intermediary). 

  -- The intermediary has 90 days from the day it receives the SNF's
     request for an exception to review it and forward a
     recommendation and supporting documentation to HCFA.  The
     intermediary can recommend approval of the full request,
     approval of the request at a lower level, or denial of the
     request. 

  -- If the intermediary determines that more information is needed
     from the SNF, the SNF has 45 days to respond.  Upon receipt of
     the additional information, a new 90-day intermediary review
     period starts. 

  -- HCFA has 90 days to review the request after receiving it, the
     related documentation, and recommendation from the intermediary. 
     HCFA can request additional information, approve the request,
     approve the request at a lower level, or deny the request.  If
     additional information is requested, the particular time frames
     cited above would begin again. 


--------------------
\3 Prior to issuance of an NPR, a SNF may request an interim
exception.  Once the cost report has been settled and an NPR has been
issued, the intermediary revises the interim exception to reflect any
settlement adjustments, and a final recommended exception amount is
sent to HCFA for approval. 


   THE SNF EXCEPTION PROCESS
--------------------------------------------------------- Appendix I:3


      SPECIFIC INFORMATION SNFS
      ARE REQUIRED TO SUBMIT
------------------------------------------------------- Appendix I:3.1

SNFs are required to submit the following information when requesting
an exception: 

  -- Data for HCFA's three benchmarks:  average length of stay for
     patients, costs of ancillary services furnished to patients, and
     Medicare utilization.\4

  -- A cost report for the period for which an exception has been
     requested and for the prior period. 

  -- A comparison of per diem costs between the cost-reporting period
     for which an exception is requested and the prior cost-reporting
     period (any changes in excess of 20 percent must be documented
     and explained; changes in excess of 20 percent and over $2 per
     patient day are handled as initial requests, not as continuing
     or repeat requests). 

  -- An allocation of costs into the 12 routine cost centers that
     compose HCFA's Uniform National Peer Group (a SNF must explain,
     by cost center, all per diem costs that exceed its peer group). 
     (The 12 cost centers are listed in the next section.)

  -- A complete breakdown of direct costs, including nursing salary
     costs of registered nurses, licensed practical nurses, and
     nurses' aides. 

  -- A list of productive and nonproductive nursing personnel hours. 

  -- The percentage of discharges, by reason (for example, patient
     went home, entered hospital, or died). 

  -- Diagnoses and scores on activities of daily living (ADL) for a
     sample of patients. 

  -- If a SNF's occupancy rate is below 75 percent, a list of per
     diem costs, which vary with occupancy (these costs must be
     excluded from the low-occupancy adjustment). 

  -- An explanation of the nature and scope of the services provided
     and how the services relate to costs requested in the exception
     request. 


--------------------
\4 Although Transmittal 378 indicates that submitting benchmark data
is optional, HCFA officials told us that SNFs are required to submit
these data and that a SNF that receives an exception normally exceeds
at least one of these three benchmarks. 


      ALLOWABLE ATYPICAL SERVICES
      OR ITEMS, BY COST CENTERS
------------------------------------------------------- Appendix I:3.2

Exceptions to the RCLs are allowed if the SNF's actual costs exceed
its peer group because of items or services atypical for the peer
group that it must furnish because of the special needs of a patient. 
Listed here is the cost center information that SNFs must report to
demonstrate that their high costs are the result of the atypical
services provided.  Also included is a brief description of what the
SNF must demonstrate in its comparison with the peer group.  The
total allowable exception reimbursement would be the net amount of
the atypical costs for these cost centers. 

  -- Direct cost, including nurses, nurses' aides, routine supplies
     and drugs.  Total direct nursing hours, including nurses and
     aides, cannot exceed 9.6 hours per patient day. 

  -- Employee health and welfare cost.  An exception is granted for
     that portion of employee health and welfare associated with
     direct salary per diem considered atypical. 

  -- Nursing administration cost.  An exception may be granted on the
     basis of the amount of atypical nursing hours. 

  -- Plant/maintenance cost.  An exception may be granted for
     demonstrated atypical special equipment needs, such as
     ventilators. 

  -- Housekeeping.  An exception may be granted for demonstrating a
     lower than average length of stay and/or higher than average
     proportion of incontinent patients (HCFA considers the latter to
     be 40 to 50 percent or more of the patient population). 

  -- Laundry cost.  An exception may be granted for demonstrating a
     higher than average proportion of incontinent patients or
     rendering rehabilitation care that results in a high percentage
     of patients discharged to their homes, which results in the
     provider cleaning the patient's clothes. 

  -- Dietary cost.  An exception may be granted for demonstrating
     kosher food costs in excess of nonkosher food costs or higher
     costs associated with foods with higher nutrition, pureed foods,
     or tube-feeding mixtures. 

  -- Cafeteria cost.  An exception may be granted on the basis of the
     amount of atypical direct nursing costs and is based on
     calculating the percentage of nursing costs that are atypical
     multiplied by the cafeteria costs or the provider's per diem
     cost in excess of the peer group, whichever is less. 

  -- Routine central service/supply and routine pharmacy cost.  An
     exception may be granted if the provider demonstrates atypical
     direct nursing costs. 

  -- Medical records cost.  An exception may be granted for
     demonstrating lower than average length of stay and/or higher
     than average Medicare utilization. 

  -- Social services.  An exception may be granted for demonstrating
     lower than average length of stay and/or higher than average
     Medicare utilization. 

  -- Administration and general cost.  A percentage of this may be
     granted on the basis of the portion of atypical direct and
     employee health and welfare per diem costs related to atypical
     nursing services. 


      FISCAL INTERMEDIARY
      RESPONSIBILITIES
------------------------------------------------------- Appendix I:3.3

  -- Ensure that the exception request is in writing, the type of
     exception requested is designated, the request was submitted
     within the required time frame, and cost reports for the
     exception request year and the previous year accompany the
     request.  Then send a notice to the SNF acknowledging receipt of
     the exception request. 

  -- Ensure that the SNF has submitted the cost information
     discussed, in the proper form, and that the SNF's analysis is
     complete. 

  -- Notify the SNF in writing of any problems with or questions
     about the information supplied with the request. 

  -- Determine the SNF's exception amount using the following
     procedure:  (1) Verify that the SNF's actual per diem costs
     exclude any capital-related cost.  (2) Verify that the SNF's
     direct patient care hours (nursing hours) per patient day do not
     exceed 9.6 hours.  If the nursing hours exceed 9.6 per day, the
     excess nursing costs are removed from the routine cost.  (3)
     Verify that the SNF's occupancy rate is 75 percent or higher. 
     If the occupancy rate is below 75 percent, all fixed per diem
     costs, by cost centers, are adjusted to reflect the per diem
     equivalent at the 75-percent occupancy level.  (4) After any
     adjustments, compare, by cost center, the SNF's costs with those
     of its peer group.  Freestanding rural and urban SNF costs are
     compared with their peer group's RCL.  Hospital-based rural and
     urban SNFs' costs are compared with 112 percent of their peer
     group's mean per diem cost.  Peer group mean per diem costs are
     adjusted by the wage index and cost-reporting-year adjustment
     for the applicable reporting year. 

  -- Within 90 days of receiving the request, recommend approval,\5
     partial approval, or denial of the request, and forward
     supporting documents to HCFA.  The recommendation is submitted
     along with the following:  (1) a peer group comparison, (2) the
     nursing hours per patient day for each classification of nursing
     service personnel, and (3) the per diem amount of each type of
     exception recommended and the total dollar amount of all
     exceptions. 


--------------------
\5 Six intermediaries--Aetna Life Insurance Co., Clearwater, Florida;
Aetna Life Insurance Co., Fort Washington, Pennsylvania; Associated
Hospital Service of Maine, South Portland, Maine; Blue Cross of
California, Woodland Hills, California; IASD Health Services
Corporation, Des Moines, Iowa; and Veritus Inc., Pittsburgh,
Pennsylvania--currently have the authority to make final decisions on
exception requests.  HCFA delegated this authority to evaluate the
feasibility of having intermediaries make final decisions.  It was
effective August 1995 and is scheduled to expire in August 1997. 


      HCFA RESPONSIBILITY
------------------------------------------------------- Appendix I:3.4

HCFA must notify the intermediary when it receives the exception
request.  HCFA then has 90 days to review the submitted information
and recommendation and return the request if it finds problems or
needs more information to make a final determination.  If HCFA does
not respond within 90 days, the recommendation of the intermediary
becomes final. 


DESCRIPTION OF 12
DIAGNOSIS-RELATED GROUPS FOR
LENGTH-OF-STAY ANALYSIS
========================================================== Appendix II

To assess whether hospital length of stay was different when
hospitals had SNF units, we examined the average length of stay for
the following 12 selected diagnosis-related groups (DRG). 



                         Table II.1
          
             Number and Description of 12 DRGs
                   Selected for Analysis

DRG number    DRG description
------------  --------------------------------------------
001           Cerebral--Craniotomy, age > 17, except for
              trauma

014           Cerebral--Specific cerebrovascular disorders
              except transient ischemic attack (TIA)\a

113           Orthopedic--Amputation for circulatory
              system disorders except upper limb and toe

209 and 491   Orthopedic--Major joint and limb
              reattachment procedures for upper and lower
              extremities

210           Orthopedic--Hip and femur procedures except
              major joint,
              age > 17, with complications

211           Orthopedic--Hip and femur procedures except
              major joint,
              age > 17, without complications

217           Skin--Wound debridement and skin graft
              except hand, for musculoskeletal and
              connective tissue disorders

218           Orthopedic--Lower extremity and humor
              procedures except hip, foot, and femur, age
              > 17, with complications

236           Orthopedic--Fractures of hip and pelvis

253           Orthopedic--Fracture, sprain, strain, and
              dislocation of upper arm or lower leg except
              foot, age > 17, with complications

263           Skin--Skin graft and/or debridement for skin
              ulcer or cellulitis with complications

271           Skin--Skin ulcers
----------------------------------------------------------
\a Temporary interference with the blood supply to the brain that
causes neurological symptoms lasting only a few moments or several
hours. 

We focused on these 12 high-volume DRGs because they are likely to
result in posthospital care.  From a list of 27 DRGs identified by
HCFA's Office of Research and Demonstrations as the most likely to
result in SNF or rehabilitation facility admission, we selected the
12 DRGs with the highest volume of prospective payment system (PPS)
discharges.  These 12 DRGs in 1994 accounted for 10 percent of all
PPS discharges and are predominantly orthopedic procedures,
particularly hip replacements and fractures, and stroke and skin
conditions.  These same 12 DRGs were also used by the Prospective
Payment Assessment Commission in recent analyses regarding changes in
PPS hospital length of stay for posthospital DRGs and in comparing
differences in length of stay between facilities with and without
posthospital-care units. 


ANALYZING PATIENT CHARACTERISTICS,
SERVICES PROVIDED, AND
APPROPRIATENESS OF CARE
========================================================= Appendix III

To determine patient characteristics in SNFs granted exceptions and
SNFs that did not receive exceptions and to describe the services
these two groups of SNFs provide, we analyzed (1) calendar year 1992
and 1994 data from HCFA's Medicare provider analysis and review
(MEDPAR) database, which is a Medicare claims file; and (2) calendar
year 1994 data collected from Maine, Missouri, Ohio, and Washington
Minimum Data Set (MDS) databases, a state-maintained compilation of
HCFA-required resident assessments about each nursing home
resident.\6 We also used the Resource Utilization Group, version III
(RUG-III), a model for sorting nursing home residents into homogenous
groups according to common health characteristics and the amount and
type of resources they use, to evaluate patients' nursing resource
use in Maine and Ohio SNFs.\7 We analyzed 1992 MEDPAR data because
1992 was the most recent year for which complete national information
was available about SNFs that had received exceptions.  We analyzed
1994 MDS data because that was the most recent year reliable
databases were available on patient characteristics and services
provided.  We sent a sample of medical records from the SNFs we
visited to peer review organizations (PRO) for an evaluation of the
appropriateness of care the patients received. 


--------------------
\6 Maine and Ohio use the Minimum Data Set Plus (MDS+) database, an
enhanced MDS version that includes information not contained in the
MDS. 

\7 The RUG-III model may only be used with data collected through the
MDS+ instrument.  Consequently, we could only use it with data from
Maine and Ohio. 


   MEDPAR AND MDS DATABASES
------------------------------------------------------- Appendix III:1

The MDS and MEDPAR databases cover calendar years; however, HCFA
bases its exceptions for atypical services on a SNF's fiscal year, a
time period that may not coincide with the calendar year. 
Furthermore, the state MDS databases included information about all
nursing home residents, regardless of payer and the patient's need
for skilled care.  Therefore, we undertook the following processes to
develop comparable information for our analysis. 


      IDENTIFYING SNFS WITH
      EXCEPTIONS
----------------------------------------------------- Appendix III:1.1

HCFA's Bureau of Policy Development provided us with a list of SNFs
that had received an exception for calendar year 1992.  To identify
SNFs granted an exception for the full 1992 calendar year, we
included in our analysis (1) SNFs receiving exceptions for fiscal
year 1992 whose fiscal year 1992 coincided with calendar year 1992
and (2) SNFs receiving exceptions for fiscal years 1992 and 1993 when
those years spanned January 1 through December 31, 1992. 

We used information provided to us by Medicare intermediaries to
identify SNFs granted exceptions for calendar year 1994 in Maine,
Missouri, Ohio, and Washington.  To identify SNFs granted exceptions
for calendar year 1994, we used the same process we used for 1992
data.  However, at the time of our study, few SNFs that had applied
for an exception had received a final notification granting the
exception for 1994.  Because in previous years almost all the SNFs
applying for exceptions ultimately received them, we assumed that
those SNFs applying for or receiving interim exceptions would likely
receive final approval of their exception requests.  Therefore, in
addition to considering SNFs that had received final notification
that an exception had been granted for 1994, we considered as a SNF
with an exception any SNF that had (1) requested an exception but had
not yet received an interim or final exception or (2) received an
interim exception from the intermediary. 


      MDS DATABASES
----------------------------------------------------- Appendix III:1.2

The MDS databases are state-maintained compilations of SNF staff
responses to selected items from the resident assessment instrument
mandated by the Congress under the Omnibus Budget Reconciliation Act
of 1987.  The primary purpose of collecting the assessment
information is to help nursing home staff plan and evaluate the care
they provide to residents.  The assessment incorporates over 300
items, including information about a resident's functional status,
health conditions, services received, and demographics.  HCFA has
instructed all Medicare-certified and Medicaid-certified nursing
facilities to complete this assessment on all residents upon
admission, whenever a significant change occurs in the patient's
condition, and at least annually after admission or any significant
change.  HCFA does not require that the assessment results be
submitted to it or to any other entity.  However, 13 states currently
require nursing facilities to submit all or some of the assessment
information to them, and each of these states has created an MDS
database.  We analyzed MDS data from 4 of the 13 states--Maine,
Missouri, Ohio, and Washington--after we determined that they were
states with accessible MDS databases containing data covering all of
1994 and that they also had adequate numbers of SNFs granted
exceptions. 

The states did not collect assessment data from nursing homes that
care for Medicare patients only.  Therefore, information about these
providers and their patients is excluded from our MDS analysis.  As a
result, 4 Medicare-only Maine facilities; 55 Medicare-only Missouri
facilities; 82 Medicare-only Ohio facilities, and 7 Medicare-only
Washington facilities are excluded from our MDS analysis.\8

All remaining assessments included in the 1994 MDS from Maine,
Missouri, and Washington are included in our analysis.  But states
collect their MDS data using different criteria for when the data are
collected and which patients are included in the database.  Because
Ohio collects data from facilities on the last day of each quarter,
obtaining assessments performed only for patients who are in the
facility on that date, our analysis does not include assessments
performed for Ohio patients who were admitted and discharged within
the quarter. 


--------------------
\8 These data were obtained from HCFA's Online Survey Certification
and Reporting database. 


      ANALYZING THE MDS
      INFORMATION
----------------------------------------------------- Appendix III:1.3

So we could adhere to the requester's questions about differences
among Medicare patients and the services they received in SNFs with
and without exceptions, we eliminated from the MDS those assessments
that were not performed for Medicare patients in SNF-designated beds. 
To accomplish this, we first eliminated from the database all
assessments from facilities reimbursed only by Medicaid; the
remaining MDS data were assessments from facilities that had both
Medicare- and Medicaid-designated beds.  We then sorted assessments
according to the MDS "current payment sources" field to eliminate
assessments in which Medicare did not appear to be the primary payer
for routine care.  In Maine and Ohio, only those assessments that
indicated Medicare-paid per diem costs were included in our analysis
because Medicare-paid per diem costs should identify those patients
receiving skilled, rather than nonskilled, nursing care. 

Our method for selecting Medicare skilled nursing patients in
Missouri and Washington was different because the MDS databases in
these states do not clearly identify when Medicare is paying for per
diem costs.  In these states, more than one payer field, such as
Medicare, Medicaid, or a private insurer, can be checked.  As a
result, when more than one field was checked, we were unable to
discern when Medicare was responsible for routine costs.\9 Therefore,
we included in our analysis only those assessments for which Medicare
was the only payer field checked. 

To further ensure that we analyzed assessment information from
Medicare patients only, we eliminated all assessments for patients
under the age of 18; for example, Medicare only covers patients under
that age if they have end-stage renal disease.  We also eliminated
all assessments indicating that the time between nursing home
admission and assessment was greater than 100 days because Medicare
only pays for 100 or fewer days of skilled care. 

We limited our analysis to those SNFs with 30 or more assessments
within the calendar year and aggregated the assessments according to
the facility providing the care.  We computed summary measures,
comparing the distributions of these measures between the two groups. 
Also, to ensure consistency between states, we restricted our
analysis to initial assessments only. 


--------------------
\9 Medicare sometimes pays for ancillary services when another
insurer, such as Medicaid, is paying the per diem costs.  However,
ancillary services are not incorporated in routine costs and are not
considered by HCFA when making exception decisions. 


      RUG-III ANALYSIS
----------------------------------------------------- Appendix III:1.4

Because high nursing resource utilization is a primary reason for
SNFs to request an exception, we were interested in identifying each
facility's overall nursing resource use.  To do so, we applied the
RUG-III model to Maine's and Ohio's MDS data.  We selected the
version of RUG-III that measures and classifies the MDS+ data by
overall nursing resources associated with each RUG-III category.  One
of the other RUG-III versions considers therapy resources used in
addition to nursing, but therapy costs are not included under the
RCLs; thus, this version was not relevant for our study.  Another
version is one used by states for Medicaid reimbursement, but this
version also was not relevant. 


      MEDPAR DATA
----------------------------------------------------- Appendix III:1.5

We analyzed MEDPAR demographic and diagnostic information contained
in 1992 data for all states and in 1994 data for Maine, Missouri,
Ohio, and Washington only.  We also limited this analysis to those
SNFs with 30 or more completed stays during the calendar year and
grouped the remaining SNFs into those with exceptions and those
without exceptions.  Then, similar to our analysis of MDS data, we
computed summary measures for each facility on certain data elements,
comparing the distributions of these measures between the two groups. 


      LIMITATIONS OF THE MDS AND
      MEDPAR DATA
----------------------------------------------------- Appendix III:1.6

Our analysis of MDS and MEDPAR data cannot be generalized to all
SNFs.  Although the MDS and MEDPAR data we used are the most complete
databases available about SNF patients, the data may not include
information on certain patient characteristics that, if analyzed,
would show differences between the two groups of SNFs.  In addition,
when HCFA considers whether to grant an exception to a SNF, it
compares that SNF only with those SNFs in its peer group:  urban
freestanding, urban hospital-based, rural freestanding, and rural
hospital-based.  We did not similarly subdivide the SNFs into peer
groups.  Instead, we compared all SNFs within a state that were
granted exceptions with all SNFs within that state that did not
receive exceptions, to ensure we had an adequate number of
facililties for analysis purposes. 


   APPROPRIATENESS OF CARE
------------------------------------------------------- Appendix III:2

To provide information about the appropriateness of the care SNFs
furnish their patients, we visited five freestanding SNFs that had
received exceptions in the past and continued to apply.  The
sites--located in California, Illinois, Indiana, Massachusetts, and
Washington--were chosen with input from state officials and local
nursing home ombudsmen.  At each site, we collected the medical
records of 20 patients who had received SNF care.  At four SNFs, the
sample was taken from patients who were identified by SNF personnel
as having required or likely having required atypical SNF care.  One
SNF was unable to identify its atypical SNF population; therefore, we
randomly selected 20 files from all the Medicare patient medical
records.  Many SNF staff members said that HCFA has not adequately
defined atypical SNF care, so they did not believe objective criteria
were available for them to use to make their selection.  As a result,
the selection criteria used by the SNF staff may have differed at
each facility we visited. 

The selected medical records from each SNF were sent to the PRO
located in that SNF's state and reviewed by PRO staff.  Using the
HCFA generic screens for SNFs to evaluate the adequacy of care, a PRO
nurse reviewed the medical record to identify any quality-of-care
issues.  If a potential quality-of-care problem was identified, a
physician who practices in the same or similar specialty reviewed the
medical record.  If the PRO physician upheld the nurse reviewer's
finding of a potential quality-of-care concern, the PRO contacted the
SNF with the results of the physician review and offered the facility
an opportunity to explain or give additional information not
contained in the medical record.  Only after the facility responded
did the PRO physician reviewer make a final determination about
whether a quality-of-care problem existed.\10

We also asked the PRO reviewers to evaluate the health care needs of
the sample of 20 patients in each of the five SNFs with exceptions we
visited.  The PRO evaluations were based on a five-point scale, with
one being the needs of a typical skilled nursing home patient and
five being the needs of a typical acute-care hospital patient.  We
did not ask the SNFs that we visited to review the PRO reviewers'
judgments on the complexity of their patients' needs. 


--------------------
\10 In one case, the facility did not respond; therefore, the PRO
upheld its original determination that a problem existed. 


RESULTS OF ANALYSES OF PATIENT AND
SERVICE CHARACTERISTICS
========================================================== Appendix IV


   ACTIVITIES OF DAILY LIVING
-------------------------------------------------------- Appendix IV:1

The MDS instrument directs the rater to measure the patient's ability
to perform various activities of daily living (ADL) using a numerical
scale that increases with the patient's need for assistance.  We
analyzed patient ADL scores for four types of activities:  bed
mobility (the patient's ability to reposition himself or herself in
bed), transfer (the patient's ability to move from a wheelchair to a
bed, for example, or into and out of an armchair), toilet use, and
eating.  Figures IV.1 through IV.3 show, for Maine, Ohio, and
Washington, the median total ADL scores (the sum of the scores for
each of the four activities analyzed) for patients in each group of
SNFs. 

   Figure IV.1:  Median Patient
   ADL Scores in Maine SNFs, 1994

   (See figure in printed
   edition.)

   Figure IV.2:  Median Patient
   ADL Scores in Ohio SNFs, 1994

   (See figure in printed
   edition.)

   Figure IV.3:  Median Patient
   ADL Scores in Washington SNFs,
   1994

   (See figure in printed
   edition.)


   DIAGNOSIS-RELATED GROUPS
-------------------------------------------------------- Appendix IV:2

DRGs provide a means of classifying patients into groups by relating
the diagnoses of patients to the resources used.  Tables IV.1 through
IV.7 show the national and four states' rankings of the most
frequently cited DRGs for patients in SNFs with exceptions and in
SNFs without exceptions. 



                         Table IV.1
          
           Ranking of Most Frequently Cited DRGs
          for Patients in SNFs Nationwide With and
              Without Exceptions, 1992 MEDPAR

                                            SNFs      SNFs
                                            with   without
DRG                                     exceptio  exceptio
number    DRG                                 ns        ns
--------  ----------------------------  --------  --------
012       Degenerative nervous system          9         6
           disorders
014       Specific cerebrovascular             3         2
           disorders except TIA
088       Chronic obstructive                  8         8
           pulmonary disease
089       Simple pneumonia and                 6         7
           pleurisy, age > 17, with
           complication and/or
           comorbidity
127       Heart failure and shock              5         4
236       Fractures of hip and pelvis          2         1
245       Bone diseases and specific           7
           arthropathies without
           complication and/or
           comorbidity
294       Diabetes, age > 35                  10         5
462       Rehabilitation                       1         3
466       Aftercare without history of         4         9
           malignancy as secondary
           diagnosis
467       Other factors influencing            9         8
           health status
470       Ungroupable                                   10
----------------------------------------------------------
Note:  A blank indicates that no ranking was given. 



                                                                                      Table IV.2
                                                                       
                                                                        Ranking of Most Frequently Cited DRGs
                                                                        for Patients in Four States' SNFs With
                                                                         and Without Exceptions, 1994 MEDPAR

                                                                 Maine                               Missouri                         Ohio                       Washington
                                               ------------------------------------------  -----------------------------  ----------------------------  ----------------------------
DRG                                                                          SNFs without       SNFs with   SNFs without      SNFs with   SNFs without      SNFs with   SNFs without
number    DRG                                  SNFs with exceptions            exceptions      exceptions     exceptions     exceptions     exceptions     exceptions     exceptions
--------  -----------------------------------  --------------------  --------------------  --------------  -------------  -------------  -------------  -------------  -------------
012       Degenerative nervous system                             6                     5                              9              8              6              8              5
           disorders
014       Specific cerebrovascular disorders                      3                     2               3              3              2              2              2              2
           except TIA
082       Respiratory neoplasms                                   8
088       Chronic obstructive pulmonary                           7                     6               8              7              5              7              6              7
           disease
089       Simple pneumonia and pleurisy, age                                            9               6              6              6              6              3              6
           > 17, with complication and/or
           comorbidity
090       Simple pneumonia and pleurisy, age                      6                                                                   9
           > 17, without complication and/or
           comorbidity
127       Heart failure and shock                                 4                     3               5              5              4              4              4              4
130       Peripheral vascular disorders with                                                            7
           complication and/or comorbidity
173       Digestive malignancy without                            9
           complication and/or comorbidity
183       Esophagitis, gastroenteritis and                        5
           miscellaneous digestive disorders,
           age > 17, without complication
           and/or comorbidity
236       Fractures of hip and pelvis                             2                     1               1              2              1              1              1              1
239       Pathological fractures and                                                                    9
           musculoskeletal and connective
           tissue malignancy
243       Medical back problems                                                        10              10             10             10             10                            10
245       Bone diseases and specific                                                                                                                 8
           arthropathies without complication
           and/or comorbidity
249       Aftercare, musculoskeletal system                                                                                                                        10
           and connective tissue
294       Diabetes, age > 35                                                            8                              8              3              5              7
297       Nutritional and miscellaneous                          10
           metabolic disorders, age > 17,
           without complication and/or
           comorbidity
316       Renal failure                                           9
462       Rehabilitation                                          1                     7               2              1                             3              5
466       Aftercare without history of                                                                  4              4                                                           3
           malignancy as secondary diagnosis
467       Other factors influencing health                                                                                                           9              9              9
           status
470       Ungroupable                                                                   4                                             7                                            8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note:  A blank indicates that no ranking was given. 



                                        Table IV.3
                         
                            Ten Most Frequently Cited DRGs for
                           Patients in SNFs Nationwide With and
                             Without Exceptions, 1992 MEDPAR

                                                                            Percentage of
Ranking        DRG                                           DRG number          patients
-------------  --------------------------------------  ----------------  ----------------
SNFs with exceptions
-----------------------------------------------------------------------------------------
1              Rehabilitation                                       462             10.04
2              Fractures of hip and pelvis                          236              8.99
3              Specific cerebrovascular disorders                   014              7.81
                except TIA
4              Aftercare without a history of                       466              5.68
                malignancy as secondary diagnosis
5              Heart failure and shock                              127              3.85
6              Simple pneumonia and pleurisy, age >                 089              2.97
                17, with complication and/or
                comorbidity
7              Bone diseases and specific                           245              2.26
                arthropathies without complication
                and/or comorbidity
8              Chronic obstructive pulmonary disease                088              2.17
9              Degenerative nervous system disorders                012              1.84
9              Other factors influencing health                     467              1.84
                status
10             Diabetes, age > 35                                   294              1.74

SNFs without exceptions
-----------------------------------------------------------------------------------------
1              Fractures of hip and pelvis                          236             10.04
2              Specific cerebrovascular disorders                   014              9.58
                except TIA
3              Rehabilitation                                       462              5.18
4              Heart failure and shock                              127              4.36
5              Diabetes, age > 35                                   294              3.01
6              Degenerative nervous system disorders                012              3.00
7              Simple pneumonia and pleurisy, age >                 089              2.65
                17, with complication and/or
                comorbidity
8              Chronic obstructive pulmonary disease                088              2.37
8              Other factors influencing health                     467              2.37
                status
9              Aftercare without a history of                       466              2.36
                malignancy as secondary diagnosis
10             Ungroupable                                          470              2.08
-----------------------------------------------------------------------------------------



                                        Table IV.4
                         
                            Ten Most Frequently Cited DRGs for
                         Patients in Maine SNFs With and Without
                                 Exceptions, 1994 MEDPAR

                                                                            Percentage of
Ranking        DRG                                           DRG number          patients
-------------  --------------------------------------  ----------------  ----------------
SNFs with exceptions
-----------------------------------------------------------------------------------------
1              Rehabilitation                                       462             35.67
2              Fractures of hip and pelvis                          236              6.00
3              Specific cerebrovascular disorders                   014              5.33
                except TIA
4              Heart failure and shock                              127              3.67
5              Esophagitis, gastroenteritis, and                    183              2.50
                miscellaneous digestive disorders,
                age > 17, without complication and/
                or comorbidity
6              Degenerative nervous system disorders                012              2.33
6              Simple pneumonia and pleurisy,                       090              2.33
                age > 17, without complication and/
                or comorbidity
7              Chronic obstructive pulmonary disease                088              2.17
8              Respiratory neoplasms                                082              1.83
9              Digestive malignancy without                         173              1.67
                complication and/or comorbidity
9              Renal failure                                        316              1.67
10             Nutritional and miscellaneous                        297              1.50
                metabolic disorders, age > 17,
                without complication and/or
                comorbidity

SNFs without exceptions
-----------------------------------------------------------------------------------------
1              Fractures of hip and pelvis                          236             12.69
2              Specific cerebrovascular disorders                   014              6.49
                except TIA
3              Heart failure and shock                              127              4.20
4              Ungroupable                                          470              3.62
5              Degenerative nervous system disorders                012              3.45
6              Chronic obstructive pulmonary disease                088              3.36
7              Rehabilitation                                       462              3.19
8              Diabetes, age > 35                                   294              2.38
9              Simple pneumonia and pleurisy,                       089              2.23
                age > 17, with complication and/or
                comorbidity
10             Medical back problems                                243              2.14
-----------------------------------------------------------------------------------------


                         Table IV.5
          
             Ten Most Frequently Cited DRGs for
             Patients in Missouri SNFs With and
              Without Exceptions, 1994 MEDPAR

                                                Percentage
Ranking     DRG                   DRG number   of patients
----------  ------------------  ------------  ------------
SNFs with exceptions
----------------------------------------------------------
1           Fractures of hip             236          8.47
             and pelvis
2           Rehabilitation               462          6.69
3           Specific                     014          6.13
             cerebrovascular
             disorders except
             TIA
4           Aftercare without            466          4.75
             a history of
             malignancy as
             secondary
             diagnosis
5           Heart failure and            127          4.73
             shock
6           Simple pneumonia             089          4.36
             and pleurisy, age
             > 17, with
             complication and/
             or comorbidity
7           Peripheral                   130          2.65
             vascular
             disorders with
             complication and/
             or comorbidity
8           Chronic                      088          2.28
             obstructive
             pulmonary disease
9           Pathological                 239          2.00
             fractures and
             musculoskeletal
             and connective
             tissue malignancy
10          Medical back                 243          1.83
             problems

SNFs without exceptions
----------------------------------------------------------
1           Rehabilitation               462          9.53
2           Fractures of hip             236          8.65
             and pelvis
3           Specific                     014          7.18
             cerebrovascular
             disorders except
             TIA
4           Aftercare without            466          6.68
             a history of
             malignancy as
             secondary
             diagnosis
5           Heart failure and            127          4.87
             shock
6           Simple pneumonia             089          3.66
             and pleurisy, age
             > 17, with
             complication and/
             or comorbidity
7           Chronic                      088          2.60
             obstructive
             pulmonary disease
8           Diabetes, age > 35           294          2.34
9           Degenerative                 012          2.30
             nervous system
             disorders
10          Medical back                 243          1.53
             problems
----------------------------------------------------------


                         Table IV.6
          
             Ten Most Frequently Cited DRGs for
           Patients in Ohio SNFs With and Without
                  Exceptions, 1994 MEDPAR

                                                Percentage
Ranking     DRG                   DRG number   of patients
----------  ------------------  ------------  ------------
SNFs with exceptions
----------------------------------------------------------
1           Fractures of hip             236         10.04
             and pelvis
2           Specific                     014          8.80
             cerebrovascular
             disorders except
             TIA
3           Diabetes, age > 35           294          5.80
4           Heart failure and            127          4.54
             shock
5           Chronic                      088          4.18
             obstructive
             pulmonary disease
6           Simple pneumonia             089          3.40
             and pleurisy, age
             > 17, with
             complication and/
             or comorbidity
7           Ungroupable                  470          2.79
8           Degenerative                 012          2.53
             nervous system
             disorders
9           Simple pneumonia             090          1.93
             and pleurisy, age
             > 17, without
             complication and/
             or comorbidity
10          Medical back                 243          1.85
             problems

SNFs without exceptions
----------------------------------------------------------
1           Fractures of hip             236          9.75
             and pelvis
2           Specific                     014          8.21
             cerebrovascular
             disorders except
             TIA
3           Rehabilitation               462          5.95
4           Heart failure and            127          4.97
             shock
5           Diabetes, age > 35           294          4.89
6           Degenerative                 012          3.02
             nervous system
             disorders
6           Simple pneumonia             089          3.02
             and pleurisy, age
             > 17, with
             complication and/
             or comorbidity
7           Chronic                      088          2.87
             obstructive
             pulmonary disease
8           Bone diseases and            245          2.29
             specific
             arthropathies
             without
             complication and/
             or comorbidity
9           Other factors                467          2.18
             influencing
             health status
10          Medical back                 243          1.77
             problems
----------------------------------------------------------


                         Table IV.7
          
             Ten Most Frequently Cited DRGs for
            Patients in Washington SNFs With and
              Without Exceptions, 1994 MEDPAR

                                                Percentage
Ranking     DRG                   DRG number   of patients
----------  ------------------  ------------  ------------
SNFs with exceptions
----------------------------------------------------------
1           Fractures of hip             236          9.86
             and pelvis
2           Specific                     014          8.32
             cerebrovascular
             disorders except
             TIA
3           Simple pneumonia             089          4.22
             and pleurisy, age
             > 17, with
             complication and/
             or comorbidity
4           Heart failure and            127          4.13
             shock
5           Rehabilitation               462          3.88
6           Chronic                      088          2.79
             obstructive
             pulmonary disease
7           Diabetes, age > 35           294          2.34
8           Degenerative                 012          2.09
             nervous system
             disorders
9           Other factors                467          1.97
             influencing
             health status
10          Aftercare,                   249          1.91
             musculoskeletal
             system and
             connective tissue

SNFs without exceptions
----------------------------------------------------------
1           Fractures of hip             236          9.96
             and pelvis
2           Specific                     014          6.72
             cerebrovascular
             disorders except
             TIA
3           Aftercare without            466          5.14
             history of
             malignancy as
             secondary
             diagnosis
4           Heart failure and            127          4.37
             shock
5           Degenerative                 012          3.55
             nervous system
             disorders
6           Simple pneumonia             089          3.47
             and pleurisy, age
             > 17, with
             complication and/
             or comorbidity
7           Chronic                      088          3.03
             obstructive
             pulmonary disease
8           Ungroupable                  470          2.52
9           Other factors                467          2.07
             influencing
             health status
10          Medical back                 243          2.05
             problems
----------------------------------------------------------

   RUG-III RANKING OF PATIENTS
   ACCORDING TO NURSING RESOURCE
   USE
-------------------------------------------------------- Appendix IV:3

The RUG-III model uses MDS data to apportion patients into one of 44
categories according to the amount of nursing resources they use. 
Table IV.8 shows the distribution of Maine SNF patients into each of
the 44 categories; table IV.9 shows similar information for Ohio SNF
patients.  In each state, we combined all patients in SNFs with
exceptions and compared them, in the aggregate, to all patients in
SNFs without exceptions (considering only SNFs with 30 or more MDS
assessments). 

Because the category names used in RUG-III are not self-explanatory,
we did not use these names.  Instead, we placed in rank order the
categories according to the amount of nursing resources used:  Rank 1
indicates that patients in this RUG-III category use the most
resources, rank 2 indicates the second-highest use, and so on. 




                         Table IV.8
          
           Distribution of Maine SNF Patients, by
             Ranking of Nursing Resource Use as
                 Measured by RUG-III, 1994

                       Percentage of patients\a
            ----------------------------------------------
                                                      SNFs
                                     SNFs with     without
                              SNFs  exceptions  exceptions
             SNFs with     without  (cumulativ  (cumulativ
Ranking     exceptions  exceptions          e)          e)
----------  ----------  ----------  ----------  ----------
1                  0.0         0.1         0.0         0.1
2                  0.2         0.5         0.2         0.6
3                  0.6         3.3         0.8         3.9
4                  2.5         1.6         3.3         5.5
5                  2.7         4.6         6.1        10.1
6                  1.9         1.8         7.9        11.9
7                  2.1         2.1        10.0        13.9
8                  1.3         6.3        11.3        20.2
9                  2.7         1.6        14.0        21.8
10                 6.3         4.7        20.3        26.5
11                 0.2         2.2        20.5        28.7
12                20.9        19.4        41.4        48.1
13                 3.3         2.2        44.8        50.3
14                 2.9         2.2        47.7        52.5
15                 2.5         3.4        50.2        55.8
16                 6.3         7.5        56.5        63.4
17                 0.8         0.7        57.3        64.1
18                 1.9         1.0        59.2        65.1
19                 5.2         2.2        64.4        67.3
20                 4.6         4.0        69.0        71.3
21                 1.9         2.5        70.9        73.8
22                 0.8         0.4        71.8        74.2
23                 9.6         5.9        81.4        80.1
24                 1.9         1.3        83.3        81.4
25                 0.4         0.6        83.7        82.0
26                 0.2         0.6        83.9        82.6
27                 0.6         0.7        84.5        83.3
28                 0.0         0.0        84.5        83.3
29                 1.5         1.6        86.0        85.0
30                 3.6         5.1        89.5        90.0
31                 0.8         0.8        90.4        90.8
32                 0.8         0.9        91.2        91.7
33                 0.2         0.1        91.4        91.8
34                 0.0         0.0        91.4        91.8
35                 1.0         0.4        92.5        92.2
36                 4.2         4.2        96.7        96.5
37                 0.0         0.5        96.7        96.9
38                 0.0         0.1        96.7        97.0
39                 0.0         0.0        96.7        97.0
40                 1.3         0.9        97.9        97.9
41                 0.2         0.5        98.1        98.5
42                 0.4         0.2        98.5        98.7
43                 0.2         0.1        98.7        98.8
44                 1.3         1.2       100.0       100.0
----------------------------------------------------------
\a Numbers may not add to totals because of rounding. 




                         Table IV.9
          
           Distribution of Ohio SNF Patients, by
             Ranking of Nursing Resource Use as
                 Measured by RUG-III, 1994

                       Percentage of patients\a
            ----------------------------------------------
                                                      SNFs
                                     SNFs with     without
                              SNFs  exceptions  exceptions
             SNFs with     without  (cumulativ  (cumulativ
Ranking     exceptions  exceptions          e)          e)
----------  ----------  ----------  ----------  ----------
1                  1.1         1.4         1.1         1.4
2                  2.2         1.7         3.3         3.0
3                 12.4         9.2        15.7        12.2
4                  2.2         2.4        17.9        14.6
5                  2.4         3.9        20.2        18.5
6                  1.6         2.1        21.9        20.6
7                  2.6         3.0        24.4        23.6
8                 17.3        16.4        41.7        40.0
9                  1.6         1.5        43.4        41.5
10                 3.8         3.3        47.2        44.8
11                 1.8         2.4        49.0        47.2
12                11.3        14.2        60.3        61.5
13                 2.6         2.4        62.8        63.9
14                 2.6         1.5        65.4        65.4
15                 0.4         0.5        65.8        65.9
16                 1.6         1.9        67.4        67.7
17                 0.0         0.3        67.4        68.0
18                 2.4         1.8        69.8        69.7
19                 2.2         2.5        71.9        72.2
20                 0.2         0.5        72.1        72.7
21                 1.6         2.0        73.8        74.6
22                 0.0         0.2        73.8        74.9
23                 9.1         8.3        82.9        83.1
24                 0.7         0.9        83.6        84.0
25                 0.4         0.6        84.0        84.6
26                 0.0         0.1        84.0        84.6
27                 0.0         0.1        84.0        84.7
28                 0.0         0.1        84.0        84.8
29                 1.6         1.5        85.6        86.3
30                 6.9         5.6        92.5        92.0
31                 0.5         0.5        93.1        92.5
32                 0.2         0.3        93.3        92.8
33                 0.2         0.0        93.4        92.8
34                 0.5         0.2        94.0        93.0
35                 1.1         0.6        95.1        93.6
36                 3.5         3.3        98.5        96.9
37                 0.0         0.0        98.5        96.9
38                 0.0         0.0        98.5        96.9
39                 0.0         0.0        98.5        96.9
40                 0.4         1.1        98.9        98.0
41                 0.0         0.2        98.9        98.2
42                 0.0         0.0        98.9        98.2
43                 0.0         0.3        98.9        98.5
44                 1.1         1.5       100.0       100.0
----------------------------------------------------------
\a Numbers may not add to totals because of rounding. 


   OTHER PATIENT CHARACTERISTICS
-------------------------------------------------------- Appendix IV:4


      COGNITIVE STATUS
------------------------------------------------------ Appendix IV:4.1

The MDS directs the rater to select, from four possible choices, the
patient's ability to make decisions regarding the tasks of daily life
(for example, selecting clothing or determining mealtimes).  The four
possible levels are (1) independent (decisions are consistent and
reasonable), (2) moderately independent\11 (some difficulty in new
situations only), (3) moderately impaired (decisions are poor, and
cues or supervision are required), or (4) severely impaired (rarely
or never makes decisions).  Figures IV.4 through IV.7 show, for each
of the four states we analyzed, the percentage of patients in each
group of SNFs with moderate or severe cognitive impairment. 

   Figure IV.4:  Percentage of
   Maine SNF Patients With
   Moderate or Severe Cognitive
   Impairment, 1994

   (See figure in printed
   edition.)

   Figure IV.5:  Percentage of
   Missouri SNF Patients With
   Moderate or Severe Cognitive
   Impairment, 1994

   (See figure in printed
   edition.)

   Figure IV.6:  Percentage of
   Ohio SNF Patients With Moderate
   or Severe Cognitive Impairment,
   1994

   (See figure in printed
   edition.)

   Figure IV.7:  Percentage of
   Washington SNF Patients With
   Moderate or Severe Cognitive
   Impairment, 1994

   (See figure in printed
   edition.)


--------------------
\11 The MDS characterizes this level as "modified independence."


      PRIOR NURSING HOME STAY
------------------------------------------------------ Appendix IV:4.2

The MDS directs the rater to indicate, from the following list of
settings, all settings the patient lived in during the 5 years prior
to admission:  (1) this nursing home, (2) another nursing home or
residential facility, (3) mental health or psychiatric setting, and
(4) mental retardation or developmentally disabled setting.  Figures
IV.8 through IV.11 show, for each of the four states we analyzed, the
percentage of patients in each group of SNFs who had a prior stay at
the current facility or at another nursing home or residential
facility. 

   Figure IV.8:  Percentage of
   Maine SNF Patients With a Prior
   Stay in This or Another Nursing
   Home or Residential Facility,
   1994

   (See figure in printed
   edition.)

   Figure IV.9:  Percentage of
   Missouri SNF Patients With a
   Prior Stay in This or Another
   Nursing Home or Residential
   Facility, 1994

   (See figure in printed
   edition.)

   Figure IV.10:  Percentage of
   Ohio SNF Patients With a Prior
   Stay in This or Another Nursing
   Home or Residential Facility,
   1994

   (See figure in printed
   edition.)

   Figure IV.11:  Percentage of
   Washington SNF Patients With a
   Prior Stay in This or Another
   Nursing Home or Residential
   Facility, 1994

   (See figure in printed
   edition.)


      AGE
------------------------------------------------------ Appendix IV:4.3

MEDPAR contains information about patient age.  Figures IV.12 through
IV.14 show, respectively, the median ages of patients in both groups
of SNFs nationwide in 1992; the median ages of patients in both
groups of SNFs in Missouri, Ohio, and Washington in 1994; and the
median ages of patients in both groups of SNFs in Maine in 1994. 

   Figure IV.12:  Median Age of
   SNF Patients Nationwide, 1992

   (See figure in printed
   edition.)

   Figure IV.13:  Median Age of
   SNF Patients in Three of the
   Four States GAO Analyzed, 1994

   (See figure in printed
   edition.)

   Figure IV.14:  Median Age of
   Maine SNF Patients, 1994

   (See figure in printed
   edition.)


   SPECIAL TREATMENTS
-------------------------------------------------------- Appendix IV:5

The MDS directs the rater to indicate, from a list of special
treatments and procedures, all treatments received by the patient in
the prior 14 days.  Following is a list of the treatments and
procedures.  Figures IV.15 through IV.30 show, for each of the four
states we studied, the median number of all treatments and procedures
each patient received as well as the percentage of patients in each
group of SNFs receiving suctioning, intravenous medication, and
oxygen. 


      SPECIAL TREATMENTS AND
      PROCEDURES INCLUDED IN THE
      MDS
------------------------------------------------------ Appendix IV:5.1

  -- Chemotherapy

  -- Radiation

  -- Dialysis

  -- Suctioning

  -- Tracheostomy care

  -- Intravenous medications

  -- Transfusions

  -- Oxygen

  -- Intake/output measurement (MDS+ only)

  -- Ventilator/respirator care (MDS+ only)

  -- Other

Most of these treatments are defined in the glossary at the end of
this report. 

   Figure IV.15:  Median Number of
   Special Treatments Received by
   Maine SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  The 90th percentile and median values for SNFs without
exceptions were one; the 10th percentile value for SNFs without
exceptions was zero. 

   Figure IV.16:  Median Number of
   Special Treatments Received by
   Missouri SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The median and 10th percentile values for SNFs
without exceptions were zero. 

   Figure IV.17:  Median Number of
   Special Treatments Received by
   Ohio SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The 90th percentile and median values for SNFs
without exceptions were one; the 10th percentile value for SNFs
without exceptions was zero. 

   Figure IV.18:  Median Number of
   Special Treatments Received by
   Washington SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The median and 10th percentile values for SNFs
without exceptions were zero. 

   Figure IV.19:  Percentage of
   Maine SNF Patients Receiving
   Suctioning, 1994

   (See figure in printed
   edition.)

Note:  The 10th percentile value for SNFs without exceptions was
zero. 

   Figure IV.20:  Percentage of
   Missouri SNF Patients Receiving
   Suctioning, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The 10th percentile value for SNFs without
exceptions was zero. 

   Figure IV.21:  Percentage of
   Washington SNF Patients
   Receiving Suctioning, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The 10th percentile value for SNFs without
exceptions was zero. 

   Figure IV.22:  Percentage of
   Maine SNF Patients Receiving
   Intravenous Medications, 1994

   (See figure in printed
   edition.)

Note:  The 10th percentile value for SNFs without exceptions was
zero. 

   Figure IV.23:  Percentage of
   Missouri SNF Patients Receiving
   Intravenous Medications, 1994

   (See figure in printed
   edition.)

Note:  The 10th percentile value for SNFs without exceptions was
zero. 

   Figure IV.24:  Percentage of
   Ohio SNF Patients Receiving
   Intravenous Medications, 1994

   (See figure in printed
   edition.)

Note:  The 10th percentile value for SNFs without exceptions was
zero. 

   Figure IV.25:  Percentage of
   Washington SNF Patients
   Receiving Intravenous
   Medications, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero. 

   Figure IV.26:  Percentage of
   Maine SNF Patients Receiving
   Oxygen Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.27:  Percentage of
   Missouri SNF Patients Receiving
   Oxygen Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.28:  Percentage of
   Ohio SNF Patients Receiving
   Oxygen Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.29:  Percentage of
   Washington SNF Patients
   Receiving Oxygen Therapy, 1994

   (See figure in printed
   edition.)


   THERAPIES
-------------------------------------------------------- Appendix IV:6

The MDS directs the rater to note the number of days in the prior
week that each of the following types of therapy was administered
(for at least
10 minutes during a day):  speech, occupational, physical,
psychological, and respiratory therapy.  The MDS+ directs the rater
to gather information on these five types of therapy as well as on a
sixth type, recreation therapy.  Figures IV.30 through IV.32 show,
for Maine, Missouri, and Ohio, the median number of days patients in
each group of SNFs received any type of therapy.  (Because we
included all types of therapy in our analysis, the sum of days may
exceed 7.  For example, a Missouri patient receiving 2 days of each
of the five types of therapy would be recorded as receiving 10 days
of therapy in the prior week.) Figures IV.33 through IV.47 show the
percentage of patients receiving occupational, physical, respiratory,
and speech therapy. 

   Figure IV.30:  Median Number of
   Days of Therapy Received by
   Maine SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  Types of therapies include speech, occupational,
physical, psychological, respiratory, and recreation. 

   Figure IV.31:  Median Number of
   Days of Therapy Received by
   Missouri SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  The 10th percentile value for SNFs without exceptions was
zero.  Types of therapies include speech, occupational, physical,
psychological, and respiratory. 

   Figure IV.32:  Median Number of
   Days of Therapy Received by
   Ohio SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  Types of therapies include speech, occupational, physical,
psychological, respiratory, and recreation. 

   Figure IV.33:  Percentage of
   Maine SNF Patients Receiving
   Occupational Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.34:  Percentage of
   Missouri SNF Patients Receiving
   Occupational Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.35:  Percentage of
   Ohio SNF Patients Receiving
   Occupational Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.36:  Percentage of
   Washington SNF Patients
   Receiving Occupational Therapy,
   1994

   (See figure in printed
   edition.)

   Figure IV.37:  Percentage of
   Maine SNF Patients Receiving
   Physical Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.38:  Percentage of
   Missouri SNF Patients Receiving
   Physical Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.39:  Percentage of
   Ohio SNF Patients Receiving
   Physical Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.40:  Percentage of
   Washington SNF Patients
   Receiving Physical Therapy,
   1994

   (See figure in printed
   edition.)

   Figure IV.41:  Percentage of
   Maine SNF Patients Receiving
   Respiratory Therapy, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The median and 10th percentile values for SNFs
without exceptions were zero. 

   Figure IV.42:  Percentage of
   Missouri SNF Patients Receiving
   Respiratory Therapy, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The median and 10th percentile values for SNFs
without exceptions were zero. 

   Figure IV.43:  Percentage of
   Ohio SNF Patients Receiving
   Respiratory Therapy, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The median and 10th percentile values for SNFs
without exceptions were zero. 

   Figure IV.44:  Percentage of
   Washington SNF Patients
   Receiving Respiratory Therapy,
   1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero.  The 10th percentile value for SNFs without
exceptions was zero. 

   Figure IV.45:  Percentage of
   Missouri SNF Patients Receiving
   Speech Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.46:  Percentage of
   Ohio SNF Patients Receiving
   Speech Therapy, 1994

   (See figure in printed
   edition.)

   Figure IV.47:  Percentage of
   Washington SNF Patients
   Receiving Speech Therapy, 1994

   (See figure in printed
   edition.)

The MDS+ also directs the rater to record, for each patient, the
total number of minutes each type of therapy was received during the
prior 7 days.  Figures IV.48 and IV.49 show, for Maine and Ohio (the
two states in our analysis using the MDS+), the median number of
minutes of all types of therapy received by patients in each group of
SNFs. 

   Figure IV.48:  Median Number of
   Minutes of Therapy Received by
   Maine SNF Patients, 1994

   (See figure in printed
   edition.)

Note:  When no bar is displayed for a SNF with an exception, then the
value was zero. 

   Figure IV.49:  Median Number of
   Minutes of Therapy Received by
   Ohio SNF Patients, 1994

   (See figure in printed
   edition.)


   OTHER VARIABLES
-------------------------------------------------------- Appendix IV:7

In addition to those items previously discussed, we analyzed MDS
information, when available, pertaining to (1) special treatments,
including chemotherapy, radiation, dialysis, tracheostomy care,
transfusions, intake and output monitoring, ventilator/respirator
care, and other treatments; and (2) psychological and recreation
therapies.  As with the previous items, no substantive differences
between SNFs with exceptions and SNFs without exceptions were found. 


   SITE VISIT NURSING STAFF RATIOS
-------------------------------------------------------- Appendix IV:8

These ratios are based on estimated average patient census and
staffing levels at the time of our visits.  Most of the directors of
nursing we interviewed indicated that they will adjust the staff
levels and mix of professional and aide staff according to the number
of patients and the complexity of patient needs. 



                        Table IV.10
          
               Estimated Ratios, by Shift, of
              Professional Nurses and Aides to
           Patients in Five SNFs GAO Visited, as
                   Reported by SNF Staff

          Professional nurses          Nurses' aides
        ------------------------  ------------------------
SNF      Day   Evening     Night   Day   Evening     Night
------  ----  --------  --------  ----  --------  --------
1       1:10      1:12      1:19  1:10      1:10      1:19
2        1:7      1:12      1:18   1:8      1:11      1:14
3       1:15      1:15      1:30   1:8       1:8       1:8
4\a      1:6       1:6      1:31  1:31      1:31      1:21
5       1:10      1:24      1:24  1:12      1:10      1:24
----------------------------------------------------------
\a Staff at this SNF told us that, because of their difficulty
finding and retaining qualified nurses' aides, they have implemented
a system of nursing under which registered nurses perform most
patient care tasks. 




(See figure in printed edition.)Appendix V
HCFA GENERIC QUALITY SCREENS FOR
SNFS
========================================================== Appendix IV



(See figure in printed edition.)




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE HEALTH CARE
FINANCING ADMINISTRATION
========================================================== Appendix IV



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
========================================================= Appendix VII

GAO CONTACTS

Thomas G.  Dowdal, Assistant Director, (202) 512-6588
Sandra K.  Isaacson, Assistant Director, (202) 512-7174
Connie J.  Peebles, Senior Evaluator, (202) 512-7241
Robert B.  Sayers, Senior Evaluator, (617) 565-7559

STAFF ACKNOWLEDGMENTS

In addition to those named above, the following evaluators made
important contributions to this report:  Jerry G.  Baugher, Stephen
P.  Gaty, Roger T.  Hultgren, Elsie M.  Picyk, Darrell J.  Rasmussen,
Suzanne C.  Rubins, Michelle L.  St.  Pierre, and Thomas S.  Taydus. 
Other contributors to this report were George H.  Bogart, Robert
DeRoy, Steven R.  Machlin, and Clarita A.  Mrena. 


GLOSSARY
============================================================ Chapter 1


      ACTIVITIES OF DAILY LIVING
-------------------------------------------------------- Chapter 1:0.1

Activities performed as part of a person's daily routine of
self-care, such as bathing, dressing, toileting, and eating. 


      ASSESSMENT
-------------------------------------------------------- Chapter 1:0.2

An evaluation of nursing home patients using a standard set of items
mandated by HCFA to measure a resident's physical, mental, and
psychosocial status. 


      CHEMOTHERAPY
-------------------------------------------------------- Chapter 1:0.3

The treatment of disease, usually certain types of cancer, by
chemical agents. 


      DIALYSIS
-------------------------------------------------------- Chapter 1:0.4

The mechanical process of purifying the blood of patients with kidney
disease. 


      INTERMEDIARY
-------------------------------------------------------- Chapter 1:0.5

An entity, usually an insurance company such as Blue Cross and Blue
Shield, Travelers, and Aetna, under contract to HCFA to process
Medicare claims and perform payment safeguard or payment control
activities. 


      INPUT/OUTPUT MONITORING
-------------------------------------------------------- Chapter 1:0.6

Measuring the volume of fluids consumed and eliminated by a patient
over a determined time period. 


      INTRAVENOUS MEDICATION
-------------------------------------------------------- Chapter 1:0.7

A method of administering medicine and other fluids through a vein. 


      OCCUPATIONAL THERAPY
-------------------------------------------------------- Chapter 1:0.8

The use of self-care, work, and play activities to increase patient
function, enhance development, and prevent disability. 


      PHYSICAL THERAPY
-------------------------------------------------------- Chapter 1:0.9

Treatment by physical means, such as stretching and walking, as
opposed to medical, surgical, or radiologic measures, to ameliorate
physical disability. 


      PEER REVIEW ORGANIZATION
------------------------------------------------------- Chapter 1:0.10

A group mandated by the Tax Equity and Fiscal Responsibility Act of
1982 to review quality of care and appropriateness of admissions for
Medicare and Medicaid beneficiaries. 


      OXYGEN
------------------------------------------------------- Chapter 1:0.11

The administration of oxygen by inhalation, often to treat or assist
patients with lung and heart problems. 


      RADIATION
------------------------------------------------------- Chapter 1:0.12

The treatment of disease, usually certain types of cancer, using
radioactive material. 


      RECREATION THERAPY
------------------------------------------------------- Chapter 1:0.13

Therapy ordered by a physician that provides therapeutic stimulation
beyond the general activity program in a facility. 


      RESPIRATORY THERAPY
------------------------------------------------------- Chapter 1:0.14

Exercises to improve breathing, which may include such techniques as
coughing, deep breathing, aerosol treatments, and mechanical
ventilation. 


      SPEECH THERAPY
------------------------------------------------------- Chapter 1:0.15

The use of special techniques used to correct speech and language
disorders. 


      SUCTIONING
------------------------------------------------------- Chapter 1:0.16

The removal of fluids, often from the lungs, by mechanical means. 


      TRACHEOSTOMY
------------------------------------------------------- Chapter 1:0.17

The surgical creation of an opening into the trachea through the neck
for the purpose of inserting a tube to relieve airway obstruction and
assist in breathing. 


      TRANSFUSIONS
------------------------------------------------------- Chapter 1:0.18

The introduction of whole blood or a blood component, such as
platelets, directly into the bloodstream through a vein or artery. 


      VENTILATOR/RESPIRATOR
------------------------------------------------------- Chapter 1:0.19

A mechanical device to maintain an exchange of air in patients unable
to breathe on their own. 


*** End of document. ***