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Long-term Care Hospital Reimbursement Loophole Challenged

Analysis  |  By John Commins  
   September 19, 2018

A new working paper recommends that long-term care hospitals lose their special reimbursement schedules under Medicare and instead get paid like cheaper SNFs.

Long-term care hospitals are paid too much for the care they provide, and should be stripped of their special reimbursement schedules under Medicare, a new study says.

Academics from the University of Chicago, Stanford University, and MIT in the joint study say most patients in long-term care hospitals would get the same or better care at less-costly skilled nursing facilities.

The study, released as a National Bureau of Economic Research Working Paper, estimates that Medicare could save $4.6 billion a year—with no harm to patients—by eliminating reimbursement schedules for long-term care hospitals, and instead paying them the same as skilled nursing facilities.

The paper has brought on the ire of the National Association of Long Term Care Hospitals, which said the analysts failed recognize that long-term care hospital are also acute care hospitals.

"As a result, they can and do treat patients that a SNF (which are sub-acute providers and that do not have the clinical infrastructure or staffing of a hospital) would not and should not," Lane Koenig, NALTCH's director of research and policy, said in an email to HealthLeaders.

"Because of this failure to recognize these differences, they mischaracterize the findings of their study in the abstract, introduction, and elsewhere in the paper," Koenig said.

The study calls for the elimination of a carve out for LTC hospitals that Congress created in the early 1980s that exempted them from payment reforms. As a result, LTC hospitals receive a substantially higher reimbursement than traditional hospitals, the study says.

That loophole has prompted the growth in the number of LTC hospitals, from a few dozen in the 1980s, to more than 400 today, and they account for $5.4 billion in annual Medicare spending.

"They are unique to the U.S. healthcare system, and, to the best of our knowledge, do not exist in any other country," said study co-author Prof. Neale Mahoney with the University of Chicago Booth School of Business.

The researchers examined new LTC hospitals entering the market between 1998 and 2014, and tracked patients leaving acute-care hospitals for the new LTC hospital. That transition triggered "a significant increase in Medicare spending and out-of-pocket costs for patients," the study found.  

LTC hospitals cost the federal government three times as much as cheaper venues, such as SNFs, the study found, noting that in 2014, LTC hospitals were reimbursed at about $1,400 per day compared to about $450 at SNFs that provided medically similar care.

Despite the increased costs, the study said there was no evidence that LTC hospitals improved outcomes or reduced 90-day readmissions.

Even with the higher cost, the researchers found no evidence that long-term care hospitals increased the probability of patients going home, or reduced the chances of the patients dying within the 90 days after being admitted.

The researchers said that LTC hospitals likely will do their best to hobble any reforms to their reimbursements.  

"The $4.6 billion of incremental spending generated by long-term care hospitals every year may look like 'waste' to the health economist, but to the (largely for-profit) industry it might more accurately be referred to as 'rents,'" the study said.

"This suggests a large financial incentive on the part of long-term care hospitals to block major regulatory changes, and may help explain their continued survival."

LTC Hospitals Refute Study

Koenig says the study fails to take into consideration several key points that invalidate the findings.


  • The study data are outdated and do not reflect the LTC hospitals Medicare patients or policies. The study covers LTCH market entrants between 1998 and 2014. Most of the growth examined in the paper happened prior to 2007. Today, the LTC hospital population has even higher acuity due, in large part, to a 2013 law that established patient criteria.  
  • The study fails to recognize that LTC hospitals are acute-care hospitals and, as a result, can and do treat patients that a SNF (which are sub-acute providers and that do not have the clinical infrastructure or staffing of a hospital) would not and should not.
  • The study does not allow for the possibility that the clinical impact of LTC hospitals varies across types of patients. For some patient groups that spend three or more days in an intensive care unit or have multiple organ failure, LTC hospitals generate Medicare savings and improve mortality.
  • The study does not report the effect of LTC hospital care on readmissions to acute-care hospitals. A close reading of tables in the appendices suggests the authors did find a noticeable decline in readmissions corresponding to LTC hospital care, which contradicts the study's claim that LTC hospital care is not associated with measurable clinical improvement.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


Study claims LTC hospitals cost three times as much as cheaper venues, such as SNFs, for the same care.

Researchers say its time to end the loophole that pays LTC hospitals a higher reimbursement.

LTC hospital advocates say the study authors rely on old data and ignore data that conflicts with their findings.

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