Several years ago, my father in law fell and broke his hip.  He was taken to the hospital, where a surgeon operated on his hip and where he spent the next 5 days recovering.  He was then transferred to a nursing home for further physical and occupational therapy.  We expected that he would be there for weeks since he was having great trouble walking.

It was therefore a shock when the nursing home contacted us the next week, saying that Medicare would no longer pay for his nursing home care because  he was not making progress in his recovery.  We questioned the decision because we knew that Medicare would fully cover up to 21 days of a nursing home stay, and partially cover an additional 80 days.  But the nursing home was adamant that my father in law had reached a plateau and therefore Medicare would not pay for further care.

What we had just encountered was the “Improvement Standard” – a policy that allows Medicare to terminate benefits for therapy services (physical, occupational and speech) once patients stop showing improvement.  This Improvement Standard applied to therapy services provided in all settings: nursing homes, outpatient clinics and home health.

It made no sense to us that Medicare would pay for all my father in law’s surgical and hospital expenses, but then not pay for the therapy necessary for him to relearn how to walk.  And as it turns out, we were not the only ones deeply distressed by this standard.

At the end of 2011, the Center for Medicare Advocacy filed a class action suit against the US Department of Health and Human Services, Jimmo v. Sebelius, alleging that the government was improperly interpreting its own regulations.  The suit claimed neither Medicare law nor its regulations sanctioned the Improvement Standard.

The suit was supported by 7 different organizations representing the interests of those with chronic illnesses, including multiple sclerosis, Parkinson’s, and Alzheimer’s.  These advocates knew that people with diseases that have no cure usually do not improve.  The goal of treatment for these diseases is to maintain functionality, and when that is no longer possible, to slow the progression of the decline for as long as possible.

At the end of 2013, the federal government agreed to settle the case.

What the Settlement Does

Under the settlement agreement, the government must take four specific actions:

1. Revise all Medicare policy manuals to eliminate references to improvement and to make clear that Medicare will, subject to other existing limits on coverage, pay benefits for treatments that are necessary to maintain functionality or to slow further decline;
2. Allow Medicare beneficiaries who were denied coverage under the improvement standard and whose appeal period had not expired, the right to refile their claims;
3. Undertake a 3-year education program about the revised standard for all providers and payment intermediaries; and
4. Monitor claims to make sure that new determinations are consistent with the terms of the settlement.

What the Settlement Does Not Do

There has been some confusion about the extent to which this case has changed Medicare coverage.  In essence, the settlement makes the government abide by the terms of the pre-existing Medicare law and regulations, which contain no reference to improvement as a condition of coverage.

The settlement does not expand coverage for therapeutic services.  The post acute services covered by Medicare already have strict limits.  For example, nursing home coverage is limited to 100 days per admission. Home health coverage is limited to those who are house bound and who need only intermittent care.  Out patient care is subject to an annual dollar cap.  This settlement does not change any of these limits.  However, it allows Medicare patients to receive the full benefits permitted by the program.

The Likely Fiscal Impact

It is too soon to know what impact the settlement will have on Medicare’s finances.  The general consensus is that it will increase government spending.  Certainly, the line item for payments for post acute service expenses should increase.

What will be more difficult to track, however, is how much the increase in payments for therapies will offset other expenses the government would otherwise incur.  To the extent that additional therapy results in fewer hospitalizations or nursing home stays, there will be an impact in the Medicare budget.  And if the therapy reduces the time people spend in a nursing home as a Medicaid patient, the cost savings will appear in both the state and federal Medicaid budgets, not in the Medicare budget.

The Impact on Patients

If you require therapy after an accident or due to a chronic condition, make sure that the provider is aware that the Improvement Standard is no longer in use.  File an appeal in the event that your benefits are cut off if you think you are still eligible for services.

Post Script

As for my father in law, he remained in the nursing home as a private pay patient.  He slowly learned how to walk again and was able to go home in 3 months – about the amount of time that Medicare is supposed to cover for nursing home care.