Post-acute care (PAC) refers to the recovery-oriented care provided after a hospital stay for an illness or injury. There are four main settings that provide PAC services in the U.S.: skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), and home health agencies. Together these settings serve over 13 million Medicare beneficiaries annually following a hospitalization.
Skilled nursing facilities, often referred to as nursing homes, provide short-term rehabilitative or nursing care along with long-term custodial care. SNFs admitted over 3.5 million Medicare beneficiaries in 2019, making them the largest PAC provider. Inpatient rehabilitation facilities specialize in intensive rehabilitation services for patients requiring a higher level of therapy. IRFs served around 1 million Medicare patients in 2019. Long-term care hospitals treat patients with complex medical conditions over an extended period, with an average length of stay over 25 days. In 2019, LTCHs admitted over 133,000 Medicare patients. Finally, home health agencies provide skilled nursing and therapy services to patients in their home, allowing for recovery in a more comfortable setting. Over 3.5 million Medicare beneficiaries received home health services in 2019.
Financial Factors Driving Reform
PAC spending now accounts for over 10% of total Medicare expenditures each year. Between 2006 and 2016, Medicare PAC spending grew at an average annual rate of 5.4% compared to 3.8% for the overall Medicare program. This rapid growth can be partly attributed to an aging population and medical advances enabling treatment of sicker patients in outpatient settings. However, financial pressure has also stemmed from the lack of coordination and inconsistent standards across different PAC sites.
Policymakers aim to develop a more value-based and coordinated U.S. Post-acute Care Market
that reduces financial waste while maintaining or improving patient outcomes. The Bipartisan Budget Act of 2018 began the process of standardizing PAC payment rates and quality measurement. It also established more financial accountability for reducing hospital readmissions across all PAC settings. These reforms attempt to steer patients to the lowest-cost setting able to meet their needs, rather than base placement decisions primarily on facility or physician financial interests.
New Quality and Outcome Measures
Better quality measurement is seen as key to driving better resource use in U.S. Post-acute Care Market. Ongoing initiatives are expanding outcome-focused metrics that assess functional status, safe transitions, and patient experience. For example, all four PAC settings must now report standardized patient assessment data and quality measures to the Centers for Medicare and Medicaid Services (CMS). This includes functional status measures like mobility levels and a standard set of healthcare-associated infection indicators.
CMS is also advancing the use of risk-standardized outcome measures to compare facilities. For SNFs and IRFs, these include rates of unplanned hospital readmissions and discharges to the community within 30 and 90 days. LTCHs report 30-day mortality and discharge destination rates. Developing robust outcome metrics faces challenges due to patient complexity and limited risk-adjustment capabilities. Standardizing data and quality metrics across settings aims to enable more meaningful comparisons to support care coordination and value-based payment.
Value-Based Payment Models
To strengthen financial incentives for high-quality, low-cost care, CMS is introducing voluntary and mandatory bundled payment models in PAC. Bundled payments set a prospectively-determined payment amount to cover a full episode of care, from the initial hospitalization through PAC recovery. Providers receive a bonus or face penalties based on overall spending and quality performance within the bundled period.
One prominent example is the Bundled Payments for Care Improvement Advanced (BPCI Advanced) model, which began in October 2018. It holds participating providers jointly accountable for PAC spending following a hospital discharge. To date, over 600 providers are partnering across care settings in over 30 clinical episodes under BPCI Advanced. Preliminary CMS analyses show reduced spending and readmission rates within bundled episodes. As the program matures, bundled payments aim to encourage PAC providers to coordinate patient placements based on appropriateness rather than payment incentives. Over time, bundles may expand to incorporate professional services and achieve even greater cost savings for the Medicare program.
The U.S. Post-acute Care Market has evolved rapidly over the past decade and a half, driven by significant financial pressures to curb unnecessary spending growth. Reforms like standardized quality measures, provider accountability for outcomes, and bundled payment models seek to develop a more coordinated, value-based continuum of PAC services. While challenges remain in developing sufficient risk adjustment and gaining widespread provider participation, ongoing initiatives aim to target patient needs more precisely and align payment with high-quality, efficient care delivery across settings. As the journey toward value continues, post-acute care coordination and affordability remain a priority for Medicare policymakers and beneficiaries.
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*Note:
1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it
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