This report, conducted for the Medicare Payment Advisory Commission (MedPAC), presents the methods used to develop and assess the potential for fee-for-service Medicare to pay for post-acute care (PAC) using a unified prospective payment system (PPS). We update our previous modeling of a PAC PPS using 2019 data to estimate impacts of a PAC PPS on PAC providers and beneficiaries. Our initial work for MedPAC on a unified PAC PPS used earlier data to demonstrate the potential to pay for post-acute stays based on administrative data available in all four settings—home health agencies, skilled nursing facilities, inpatient rehabilitation facilities, and long-term care hospitals.

In keeping with earlier work, the PAC PPS design described in this paper would pay by stay. Our model uses function measures as predictors but also presents impacts from a payment model excluding function, allowing a direct comparison of the performance of the two versions of the model in explaining costs per stay. For our primary estimated impacts, we assume that the system is implemented immediately and is budget neutral. We also simulate two other scenarios for implementation: immediate implementation with a 5 percent reduction to payments and implementation of the PAC PPS with a 5 percent reduction phased in over three years. We describe the data sources and methods underlying PAC prospective payment systems. We also report and briefly describe the results for the updated PAC PPS, the effects of inclusion of function in the payment model, and the effects on payments of the two modeling approaches. This report provides technical background to support the discussion in MedPAC’s forthcoming 2023 report to Congress, which will describe in more detail the implications of the findings for the design of a unified payment system, as well as the likely impacts of moving from the current setting-specific prospective payment system to a unified payment system.