The New York Times had an interesting article about the growing industry of long term care hospitals. The greedy owners manipulate the Medicare and Medicaid regulations on reimbursement to make even more money and profit.
Fewer than 10 hospitals dedicated to long-term care existed in the early 1980s, according to Medicare officials. More than 400 long term care hospitals have opened nationally in the last 25 years. These hospitals have sprouted driven by Medicare rules that offer high payments for hospitals that treat patients for an average of 25 days or more. Long-term care hospitals now treat about 200,000 patients a year, including 130,000 Medicare patients — at a projected cost of $4.8 billion to the government this year, up from $400 million in 1993.
Among the more peculiar aspects of long-term care hospitals is that nearly half of them, and almost all of Select’s, are actually “hospitals within hospitals.” They do not have their own buildings and instead occupy a floor or two of an existing hospital. They contract most services from the host hospital, so they can be opened quickly and cheaply.
Yet under Medicare rules, because they have different owners, the two hospitals are considered separate for payment purposes. This means there can be a second reimbursement when a patient is simply transferred between floors. Under Medicare payment rules, traditional hospitals often lose money on patients who stay for long periods. So they have a financial incentive to discharge patients to long-term hospitals, which then receive new Medicare payments for admitting the patients. Both hospitals benefit financially. The industry’s growth is an example of how health care companies can exploit the $450 billion Medicare program.
Few long term care hospitals have doctors on staff. Select, which has 23,000 employees and provided care to 42,000 patients in 2009, has no physicians on its board or in management. In 2007, it hired a physician for a new position, national medical director. The physician, Dr. David Jarvis, does not work at Select’s headquarters in Mechanicsburg, Pa., and has no management responsibilities. He estimated he spent only 10 hours a week working for Select Medical. Select Medical Corporation is a publicly traded Pennsylvania company that runs 89 long-term hospitals, more than any other company.
Lawsuits, state inspection reports and statistics deep in federal reports paint a troubling picture of the care offered at some Select hospitals, and at long-term care hospitals in general. For-profit long-term hospitals generally spend less on patients and have higher margins than comparable nonprofits, according to data from the Medicare Payment Advisory Commission, a Congressional research agency. In 2007, for-profit long-term care hospitals had margins of 6 percent on Medicare patients, while regular hospitals lost an average of 6 percent on Medicare patients, according to the commission. In a presentation to investors last month, Select Medical reported that it improved its margins by lowering staffing levels and supply costs. Medicare inspection reports, however, describe preventable patient injuries and deaths, and they portray Select’s hospitals as understaffed and with high turnover.
In 2007 and 2008, Select’s hospitals were cited at a rate almost four times that of regular hospitals for serious violations of Medicare rules. Other long-term care hospitals were cited at a rate about twice that of regular hospitals. Long-term care hospitals also had a higher incidence of bedsores and infections than regular hospitals in 2006, the most recent year for which federal data is available.
Unlike other specialized hospitals, like psychiatric or children’s hospitals, long-term care hospitals do not treat specific types of patients or offer services unavailable in regular hospitals. They are defined solely by the fact that they keep patients longer than other hospitals. They are also smaller than a typical hospital, averaging about 60 beds.
Despite the rapid expansion of long-term care hospitals, Medicare has never closely examined their care. Unlike traditional hospitals, Medicare does not penalize them financially if they fail to submit quality data.
Select also manipulates how long patients stay, to maximize its profits. A hospital is certified as a long-term care hospital and receives high Medicare reimbursements if most patients stay at least 25 days. But Medicare pays the hospital a set amount for each patient, meaning that patients who stay longer than that become less profitable. Therefore, long-term care hospitals are most profitable if most patients are discharged at or just after their 25th day, with a few discharged earlier. Select adheres closely to this formula, with an average length of stay at its hospitals of about 24 days, according to public filings. At some Select hospitals, the 25th day is called the “magic day,” ex-employees say.
Partly owned by a private equity firm, Select Medical sold shares to the public in September. Its top two executives, a father and son named Rocco and Robert Ortenzio, have made about $200 million from salary, benefits and share sales since founding Select in November 1996. The Ortenzios, who are veterans of the for-profit hospital industry, still own about 10 percent of the company, worth about $200 million.
