Long-term care hospitals can't afford to treat their sickest Medicare patients, AHA says

Traditional Medicare’s bar for reimbursing long-term care hospitals (LTCH) for severely ill, “high-cost outlier” patients has spiked under current payment policies.

These policies are setting up long-term care providers to incur “greater and greater losses” and put beneficiaries' future access to care at risk, the American Hospital Association (AHA) wrote in a recent white paper.

The cutoff for an expensive LTCH case to qualify for extra reimbursement, known as the high-cost outlier policy’s “fixed-loss amount,” rose 55% from FY 2023’s $38,518 to FY 2024's $59,873. The hospital lobby wrote that it projects the cutoff to again increase by 17% in FY 2025 to $70,117—bringing an extra $54 million in losses to a subsector with total annual Medicare payments of $2.6 billion.

“If not halted by meaningful reform … the LTCH field will continue to contract due to unsustainable losses and other mounting financial pressures,” AHA wrote in the white paper. “To protect their ability to care for their communities at large, those LTCHs that remain will be forced to carefully consider whether they are able to admit the most critically ill beneficiaries.

“It is likely that the sickest of the sick, those beneficiaries for which LTCHs typically receive an HCO payment, will be unable to access LTCH care,” the industry group wrote.

To preserve Medicare beneficiaries’ access to long-term care, AHA called on policymakers to — among other potential fixes — revert a FY 2022 LTCH prospective payment system methodology change that tied the cutoff for an expensive case to qualify for extra reimbursement (the high-cost outlier policy’s fixed-loss amount) to forecasted growth in charges.

Up until fiscal year 2022, the Centers for Medicare and Medicaid Services (CMS) had tied the fixed-loss amount to the market basket to keep the cutoff consistent with payments—an approach that the hospital lobby said has proven itself to be more stable for beneficiaries and providers alike.

“Specifically, AHA has forecast that under this methodology, the fixed-loss amount for FY 2025 would be approximately $54,590, very similar to the FY 2024 amount of $59,873 and substantially more reasonable than the $70,117 projected under the current methodology,” AHA wrote in its white paper.

For CMS, the hospital lobby also recommended broadening the pool of LTCH cases that are analyzed each year to calculate the fixed-loss amount and to reexamine the diagnosis-related groups cases are placed into when determining payments.

Congress, meanwhile, could broadly increase funding for high-cost outlier cases, index future changes to the high-cost outlier fixed-loss amount to inflation-related indexes (e.g., the relevant market basket or the Consumer Price Index for all Urban Consumers), or other temporary measures to keep LTCHs afloat should more extensive payment restructuring be necessary.

Failing to take these measures could have “ripple effects” on the hospital industry and care continuum, AHA wrote. A shortage of LTCH capacity would place additional strain on short-term acute care hospitals, which would find their ICUs clogged up by severely ill patients who typically are discharged to LTCHs.

As for Medicare beneficiaries, AHA noted that historically marginalized populations could be disproportionately impacted by reduced access to LTCHs.

“Specifically, while dual-eligible Medicare/Medicaid beneficiaries represent 17% of all beneficiaries, they make up 44% of LTCH cases,” AHA wrote. “In addition, Black beneficiaries also utilize LTCHs at a rate disproportionate to other Medicare beneficiaries.”