Assessing the Rising Costs of Post-Acute Health Care

May 6, 2013


Government health care costs are rising, but it’s not just emergency and surgical care that is leading the way. A new research article co-authored by Harvard Kennedy School Professor Amitabh Chandra finds that post-acute medical care is also rising at a significant rate.

Chandra and his coauthors examined spending growth in Medicare for three representative conditions, and found that from 1994-2009, post-acute care spending per patient for heart attacks more than tripled, more than doubled for congestive heart failure, and doubled for hip fractures during the year following the initial hospital admission.

Post-acute care services—long-term hospital care, rehabilitation care, and skilled nursing facility care—was also the fastest growing major spending category. Spending at skilled nursing facilities was the largest portion of both the level and growth rate of spending at post-acute care facilities. The researchers recommend that policy solutions designed to control Medicare costs, such as the current experiment under the Medicare Bundled Payment for Care Improvement Initiative, are more likely to be effective if they include post-acute care.

“The United States is an outlier among developed countries for its high level of spending on health care and its high rate of annual health care spending growth,” Chandra says. “What is not well known is whether the drivers of spending growth are the same as the drivers of the level of spending. This is a key issue because policies that produce a one-time reduction in the level of spending—for example, by making hospitals more efficient—may do little to reduce spending growth.”

Chandra and his co-authors are urging policymakers to consider new and creative cost-saving measures.

“Given that post-acute care is less suited to evaluation by clinical trials, and given that fee-for-service reimbursement has few incentives to promote cost-effectiveness when benefits to care are uncertain, we expect that cost savings could be achieved by bundling payments,” Chandra says.

“It remains to be seen whether separate bundling schemes for acute and post-acute care would perform better than large bundles that included both. However, we expect that the latter would produce greater efficiency gains by aligning the incentives of providers, and by allowing them flexibility to choose where patients received care at acute or post-acute care facilities,” Chandra concludes.

The article titled “Large Increases In Spending On Postacute Care In Medicare Point To The Potential For Cost Savings In These Settings,” appears in the May issue of Health Affairs. The article co-authors are Maurice A. Dalton, a survey data specialist at the National Bureau of Economic Research; and Jonathan Holmes, research fellow at Harvard Kennedy School.

Amitabh Chandra is a Professor of Public Policy and Director of Health Policy Research at Harvard Kennedy School, where he also Director of PhD Admissions and Area Chair for Social and Urban Policy. His research focuses on productivity and cost-growth in healthcare, medical malpractice, and racial disparities in healthcare.

Professor Amitabh Chandra

Amitabh Chandra, Professor of Public Policy

Chandra and his coauthors examined spending growth in Medicare for three representative conditions, and found that from 1994-2009, post-acute care spending per patient for heart attacks more than tripled, more than doubled for congestive heart failure, and doubled for hip fractures during the year following the initial hospital admission.


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