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March 2018
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Understanding the Market Dynamics Associated with New Payment Models Emerging from Health ReformLessons from Postacute Care Payment Changes

The article by Peter Huckfeldt and colleagues (Huckfeldt et al. 2013) in this issue of Health Services Research focuses on the market impact of several payment changes instituted between 1997 and 2010 by the Medicare program for postacute care services, including skilled nursing care, home health care and rehabilitation services. Several of these reforms changed reimbursement from its historical cost basis to a prospective payment model, similar to the Diagnostic Related Group system implemented in 1983 and used by Medicare to reimburse inpatient care provided by hospitals. Other payment changes included moving from cost-based reimbursement to per diem or per discharge payments, with all models focused on setting “appropriate” payment rates as a function of expected resource needs based on scientific evidence and clinical guidelines, adjusting for patients' clinical severity and functional ability to account for the fact that patients require different levels of services depending on their clinical and functional status. As Huckfeldt et al. (2013) describe, these payment changes can be viewed as affecting both the average payment per service and the marginal payment for a service, with the goal of these changes being to reduce unnecessary or excessive utilization, and to create incentives for health care providers to organize and deliver services more efficiently, at least within the limits of the new reimbursement levels.

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