John Britt
Claire Herring

Restoration-or reengineering? With its 2004 changes to the inpatient rehabilitation classification, CMS rocked the rehab world, and the impact is still being felt today.


At a Glance

To meet the needs of rehabilitation inpatients while complying with changes in regulatory requirements, providers may need to:

  • Revisit discharge planning
  • Ensure high-quality documentation
  • Have a centralized post-acute intake process
  • Assess the current continuum
  • Be active in educating referral sources

The root word for rehabilitation means "to restore." Restoration was exactly what the Centers for Medicare and Medicaid Services had in mind for inpatient rehabilitation when it began to focus on those services in 2002. CMS was responding to indicators that providers were not being true to the classification criteria (the "75 percent rule") established for inpatient rehab and that fiscal intermediaries were inconsistent in their assessments of providers' adherence to the rules.

A tug-of-war between the rehab industry and CMS ensued, culminating in the publication in May 2004 of the Code of Federal Regulations Part 412, Changes to the Criteria for Being Classified as an Inpatient Rehabilitation Facility. Some may say that CMS's attempt at restoration is more properly categorized as reengineering.

Whatever its goal, CMS rocked the rehab industry with these changes, and rehab providers continue to struggle to adapt to the new requirements. Furthermore, as if these federal changes were not painful enough for providers, many FIs have begun to scrutinize medical necessity criteria as never before. Many rehab units could be looking to close, and all rehab providers are challenged to look at the continuum of care differently, particularly in terms of strategy.

These significant changes have trickled down to affect patients with rehabilitation needs who are displaced to alternative levels of care. Because of the potential financial impact on facilities, CFOs and patient financial services managers should work with rehabilitation management to develop a strategy to meet the needs of patients as well as the organizations.

The Regulatory Landscape

A longstanding criterion for classification as an inpatient rehab facility or inpatient rehab unit was that 75 percent of admissions or discharges (the provider chose which) should fall into 10 condition categories: 

  • Stroke
  • Spinal chord injury
  • Congenital deformity
  • Amputation
  • Major multiple trauma
  • Femur fracture
  • Brain injury
  • Neurological disorders
  • Burns
  • Polyarthritis

IRFs were required merely to submit an affidavit annually showing how they met the 75 percent rule, and there was very little oversight on the part of the FIs. Amid rumors that some providers were overstating their compliance, CMS began to question the level of accountability in this process. In particular, it focused on polyarthritis; CMS's concern was that IRFs were admitting a disproportionate percentage of patients in this category.

After a period of volleying between the rehab industry and CMS, 42 CFR Part 412 was published, altering the rehab industry. Significant changes included: 

  • Deletion of the polyarthritis category
  • Addition of three arthritic conditions as categories (specific stipulations result in only a nominal number of admissions of these types of patients for most providers)
  • Addition of knee and/or hip joint replacements as a category, also with significant stipulations
  • Introduction of an ascending compliance threshold percentage based on the provider's cost report periods, starting at 50 percent and ascending annually to 60 percent, 65 percent, and ultimately back to 75 percent by 2007. The 2006 rules provided for a one-year extension of the compliance threshold at 60 percent, thus delaying the return to 75 percent to 2008.

The Medicare Modernization Act of 2003 directed the Government Accountability Office to issue a report reflecting its assessment of whether the condition categories represent a clinically appropriate standard for providing IRF services. This report was ultimately published in April 2005. The GAO, in essence, gave its stamp of approval to the revised classification criteria and advised CMS to: 

  • Cause FIs to conduct routine, targeted reviews for medical necessity
  • Conduct additional activities to encourage research on the effectiveness of intensive rehab and the factors that predict patient need for intensive rehab services
  • Use the information obtained from the reviews for medical necessity, research activities, and other sources to refine the rule to describe in more detail the subgroups of patients within a condition that are appropriate for IRFs rather than other settings

Subsequently, a number of FIs began to publish (and enforce) local coverage determinations with specifically defined expectations for medical necessity. Some included language such as the following: 

  • "Recovery from a single hip fracture rarely requires inpatient rehab."
  • "Recovery from a single amputation of a foot or leg may occasionally require inpatient rehab."

Note that while both conditions are included in the 13 conditions listed here, the FIs question the intrinsic medical necessity. These contradictory messages have confused providers charged with meeting both the federal classification criteria and FIs' specific requirements. Restoration or reengineering?

In February 2005, CMS published transmittal 478, a clarification of the verification process to be used in determining whether the IRF meets the classification criteria. This transmittal addressed the compliance review periods and provided limited operational guidance. 

The Alternatives

Patients' needs for rehab services are not obviated by regulatory changes or the increased enforcement thereof. However, providers need a strategy to identify patients' rehab needs and to facilitate the transition of these patients to the most appropriate level of care, such as inpatient rehab, skilled nursing facilities, long-term acute care, home health, or outpatient.

Although review of a single specific case against the criteria for any one of these levels of care might lead to a clear-cut decision of acceptance or denial (meeting or not meeting the criteria), the decision can become blurred when the case is assessed against the multiple criteria of all the available levels of care at once. The exhibit below illustrates some of the considerations for transitioning patients to the appropriate level of care for rehab services.

Patients who need more intense medical oversight are generally not ready for home health or outpatient services. IRFs have a higher intensity requirement for physician interaction (every two to three days), while SNFs require physician interaction every 30 days. The requirement for rehab nursing is unique to IRFs, although other levels of care require skilled nursing as a basic criterion. 

The "REHAB" of Rehab

The changes in the classification criteria for IRFs, coupled with increased scrutiny of medical necessity, have reduced the number of patients qualifying for IRF admission. Consequently, patients with rehab needs either will not receive those services or will be displaced to another level of care. To meet both patients' needs and the regulatory requirements, providers may need to "REHAB" their services: 

  • Revisit discharge planning.
  • Ensure high-quality documentation.
  • Have a centralized post-acute intake process.
  • Assess the current continuum.
  • Be active in educating referral sources.

Revisit discharge planning. Discharge planners should be cognizant of admission criteria at various levels of care and should be able to distinguish between sometimes discreet nuances to match patients' needs with these criteria. Discharge planners should also be facilitators of change; that is, if the physician orders a transfer to one level of care but the patient's need is better served at a different level of care, the discharge planner should be able to clarify the order in cooperation with the physician. Hospitals should assess their discharge planners' ability to effect such change by examining their relationships with physicians and assessing the level of autonomy in which they operate.

Given that IRFs, LTACs, SNFs, and home health may be considered transfer facilities, providers should pay attention to the transfer payment policy. The number of diagnosis-related groups subject to the transfer payment policy increased from 31 to 182 in January 2006. For many providers, managing the length of stay by a "less is better" philosophy is antiquated. Although it is clear that providers may not manipulate length of stay for financial reasons, it is appropriate for them to assess intermittently the care delivery model to determine whether processes are in place so that patients receive the correct services at the correct time at the correct level of care.

Active discharge planning is imperative.

Ensure high-quality documentation. Although the intake process may identify a given patient who meets the regulatory and/or medical necessity requirements, documentation at or after admission may paint a different picture. In particular, physicians should be trained to address patients' status in the context of these requirements in their histories and physicals, progress notes, and discharge summaries. Providers should never direct or guide clinicians to document something inaccurate or not pertinent to a patient; however, it is only prudent for clinicians to be aware of and honestly address these criteria in the context of patients' conditions. Many physicians are familiar with dictation templates. Providers should consider integrating specific level-of-care information into such templates.

Eventually, admission criteria become continued stay criteria, as the patient is continually assessed for appropriateness. Clinicians, case managers, and discharge planners should build prompts into their daily notes and team conference notes to address these criteria. Local coverage determinations and other guidance are usually very exacting as to criteria and expectations. If it is not documented, the likelihood of a denial or reduction of payment goes up dramatically.

Have a centralized post-acute intake process. It may make sense for hospitals to centralize the post-acute care intake process. Managers of various levels of care in the post-acute arena are often charged with meeting census projections and budget. Consequently, these managers can find themselves competing for patients being discharged from the hospital. A post-acute centralized intake process promotes fair and consistent evaluation of patients' conditions and transition to the appropriate level of care.

It also has the potential to improve communication with referring physicians. Often, questions arise after referral that require interaction with physicians. With a centralized intake process, physicians receive consistent communication from one or two people rather than from several.

Assess the current continuum. Hospitals should evaluate current levels of care in which rehab is provided to determine whether an adequate complement of services is available for their geographic market. This is particularly important if there are inpatient rehab services in the market area. Considerations include service area demographics; competitive forces; mix of patients requiring rehab services; and available rehab services in outpatient, home health, SNF, LTAC, and home health. Hospitals should determine whether they should add, delete, expand, or contract services.

Be active in educating referral sources. Physicians want what is best for their patients. They prefer for the process to be low-hassle; be careful not to drown them in the details. Although discharge planners and key players at the various levels of care need to be able to differentiate criteria and determine appropriateness of admissions, hospitals should not expect their physicians to master these details. Of course, this is not a recommendation to withhold information; it is rather a call for practicality.

Educate physicians about their roles in the referral process. It is more important for physicians to identify the need (or have the team identify the need for physicians) for rehab at a post-acute level of care generally rather than filter the status of the patient through the matrices of the admission criteria.

Ask your discharge planners if they would like to see an order such as: "Patient needs rehab after discharge. Discharge planner to determine appropriate level of care." This level of physician buy-in, coupled with a sound centralized intake process, will streamline the communication and foster timely and appropriate placement of patients. 

Pebble in the Pond

A number of patients require therapy services in the post-acute setting. Each level of care has distinguishing characteristics that determine the appropriateness of admission and the intensity of therapy services, along with other care delivery variables. Whether a hospital has its inpatient rehab as a distinct unit or not, it can count on a "pebble in the pond" effect with the changes to the 75 percent rule and the FI's increased attention to inpatient rehab.

These stimuli should cause hospitals to reevaluate their therapy care delivery models in the areas of discharge planning, levels of care, intake process in the post-acute setting, referral sources' understanding and buy-in, and documentation to support admissions and continued stay. Healthcare financial management can assist in this process by modeling a number of level-of-care scenarios and projecting associated relevant financial outcomes.


John Britt is a senior manager, Health Sciences Advisory Services, Ernst & Young, Louisville, Ky., and a member of HFMA's Kentucky Chapter (john.britt@ey.com).

Claire Herring is a manager, Health Sciences Advisory Services, Ernst & Young, Richmond, Va., and a member of HFMA's Virginia Chapter.

The views set forth herein are those of the authors and do not necessarily reflect the views of Ernst & Young, LLP.

Publication Date: Friday, June 01, 2007

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