Eliminating LTACs Could Save Medicare Billions, Boost Home Health

Each year, Medicare spends billions of taxpayer dollars to help pay for long-term care hospitals (LTCHs), also commonly referred to as long-term acute care hospitals (LTACs). Doing so is incredibly wasteful, critics argue, especially when equal or better care can likely be achieved for far less by skilled nursing facilities (SNFs) and home health care agencies.

The rise and wastefulness of LTACs were recently highlighted in a study circulated by the National Bureau of Economic Research.

LTACs started out as a regulatory carveout for a few dozen speciality hospitals in the early 1980s. Since that time, however, LTACs have grown into an industry with more than 400 hospitals and annual Medicare spending that checked in at $5.4 billion in 2014, according to the study.


Before LTACs, patients with long-term care needs traditionally received services from SNFs or at home by home health agencies.

“LTACs didn’t originate because of a medical need,” Liran Einav, a professor of economics at Stanford University and one of the study’s authors, told Home Health Care News. “It was more because of financial and administrative reasons. It then grew into an industry because of the way that these guys were getting paid relative to regular hospitals.”

Theoretically, Medicare pays for LTACs because they offer specialized care for patients with demanding care needs that other settings simply can’t provide. That idea isn’t supported by clinical or observational evidence, though, Einav said, a point underscored by the fact LTACs are only found in half of America’s health care markets.


If LTACs were medically necessary, they would be found everywhere, he said.

“If LTACs were really so important, people would be demonstrating in the streets saying they want an LTAC in their county,” Einav said. “The fact that isn’t the case either means that people are completely unaware of the value or there’s a way to provide that value without [LTACs].”

Overall, Medicare could save roughly $4.6 billion a year — with no harm to patients — by not allowing for discharge to LTACs, the study determined.

In 2014, Medicare paid SNFs an average of about $450 per day and home health care providers an average of about $73 per day. LTCHs, in comparison, were reimbursed at an average of about $1,400 per day.

Federal spending on public health care programs is expected to grow to $2 trillion by 2026, according to the Congressional Budget Office.

“Because they get paid more, LTACs must be providing something uniquely useful that regular hospitals can’t provide,” Einav said. “I think we came to this project thinking, ‘Let’s see what the implied tradeoff between taxpayer dollars and Medicare dollars and some sort of improved health outcomes was.’ Somewhat to our surprise, we couldn’t find that.”

In general, skilled nursing facilities can provide a lot of the same services as LTACs. But, with the study’s findings in mind, there’s likely opportunity for sending patients directly to home health agencies as well.

About two-fifths of Medicare hospital patients are discharged to post-acute care settings, of which about 60% are sent to institutional settings and about 40% are sent to home health care services, according to MedPAC.

Post-discharge 90-day mortality rates are often lower in home health than in LTACs.

“If we look at post-acute care as some sort of vertical ladder, the most complex patients go to an LTAC, the less complex patients go to a SNF and maybe the least complex patients that are still maybe not fully independent rely on home health care,” Einav said. “But there’s a lot of overlap in the type of services.”

Additionally, if more patients were being sent to SNFs instead of LTACs, that would also probably cause more patients to trickle down to home health agencies.

Health systems are increasingly looking toward the home to provide hospital and post-acute care services. In fact, a separate study recently outlined the success of Mount Sinai’s emerging hospital-at-home program and its ability to provide cost-effective care for participants.

Views expressed in the NBER-circulated study do not necessarily reflect the views of the National Bureau of Economic Research.

Written by Robert Holly