Reforming Medicare Payment: Early Effects of the 1997 Balanced Budget Act on Postacute Care

The 1997 Balanced Budget Act (BBA) reformed payment for Medicare postacute services. This article examines postacute care use just before and immediately after implementation of the BBA for hospital discharges for five diagnosis-related groups that commonly use postacute care. Changes in treatment patterns were more beneficiaries receiving no postacute care, much less use of home health services both initially and after initial institutional postacute care, and slightly more use of rehabilitation and long-term care hospitals. But no consistent increases in adverse outcomes were observed using logistic regression models. These results demonstrate that financing changes can affect use patterns, that less use does not automatically imply poorer quality, and that the interrelationship of services should be considered when designing reimbursement methodologies.