The objective of this study is to examine the effect of the Medicare prospective payment system (PPS) for skilled nursing facilities (SNF) on the delivery of rehabilitation therapy to residents. Resident-level data are based on the Resident Assessment Instrument Minimum Data Set for nursing facilities. All elderly residents admitted to SNFs in Michigan and Ohio in 1998 and 1999 form the study population (n=99,952). A differences-in-differences identification strategy is used to compare rehabilitation therapy for SNF residents before and after a change in Medicare SNF payment. Logistic and linear regression analyses are used to examine the effect of PPS on receipt of physical, occupational, or speech therapy and total therapy time. Data for the present study were extracted from the University of Michigan Assessment Archive Project (UMAAP). One assessment was obtained for each resident admitted to nursing facilities during the study period.
The introduction of PPS for all U.S. Medicare residents in July of 1998 was associated with specific targeting of rehabilitation treatment time to the most profitable levels of therapy. The PPS was also associated with increased likelihood of therapy but less rehabilitation therapy time for Medicare residents. The present results indicate that rehabilitation therapy is sensitive to the specific payment incentives associated with PPS.