Washington, D.C. — A coalition of major hospital associations is calling on Congress to overhaul the payment system for long-term acute care hospitals, warning that more than a quarter of the country’s specialized post-acute facilities have shut their doors in the last decade — and that more closures are coming without significant reform.
The American Hospital Association, the Federation of American Hospitals, the National Association of Long Term Hospitals, and the Coalition of Long-Term Acute-Care Hospitals released a set of formal reform principles last week aimed at stabilizing the long-term acute care hospital (LTCH) field. The principles come amid growing concern about access to high-acuity care for Medicare patients who are too complex for traditional nursing homes but no longer need a full acute hospital stay.
What’s Driving the Closures
The groups trace much of the crisis to a 2016 payment change that created what’s known as a “dual-rate” system. Under that structure, an LTCH only receives full Medicare payment if the patient spent at least three days in an intensive care unit before admission, or received 96 or more hours of ventilator care. Everyone else gets reimbursed at a far lower rate — essentially what a short-term hospital would receive.
The result has been financial devastation. Medicare spending on LTCH care dropped by a cumulative $11 billion in the first seven years of the dual-rate system, far exceeding the $3 billion in savings Congress originally projected. In another troubling finding, the AHA calculated that missed payment forecasts have left LTCHs underpaid by roughly $120 million per year since 2020.
Meanwhile, annual Medicare payments to the sector are now about 45% lower than they were before 2016 — and more than 25% of the country’s long-term hospitals have closed as a result.
Why This Matters for Nursing Homes
LTCHs sit directly above skilled nursing facilities on the post-acute care continuum. When a patient is too complex for a nursing home rehab unit but stable enough to leave the ICU, the LTCH is usually the right destination — ventilator-dependent patients, people recovering from organ failure, individuals requiring extended wound care.
When LTCHs disappear, those patients often have nowhere appropriate to go. Some end up staying longer in hospital ICUs, driving up costs and reducing capacity. Others are discharged to nursing facilities that aren’t equipped to handle their needs, or to home settings where families are unprepared. Analysts and providers have noted the downstream effects on nursing home admissions — facilities frequently deal with higher-acuity residents who would previously have transitioned through an LTCH.
The growing Medicare Advantage problem also makes things worse. Industry reports indicate that some MA plans refuse to include LTCHs in their provider networks altogether, or use prior authorization to block admissions that traditional Medicare would have approved. The reform principles call on Congress to require MA plans to include LTCHs in their networks where they exist and to stop discriminatory admission practices.
What the Principles Call For
Beyond fixing the dual-rate payment problem, the coalition’s recommendations include improving payment accuracy for high-acuity cases, revisiting the 25-day average length of stay requirement that was written in 1983, and expanding rural access by allowing patients from critical access hospitals to qualify for full LTCH payment rates.
The document also calls for restructuring the outlier payment system. Under the current setup, LTCHs must absorb an increasingly large share of losses before any extra reimbursement kicks in — a problem that has worsened as patient volume has concentrated in a smaller number of facilities.
The proposals arrive as Medicaid cuts threaten hundreds of hospitals across the country, adding to an already fragile post-acute ecosystem that relies on functional hand-offs between hospital systems, long-term acute care facilities, and skilled nursing homes.
For the nursing home sector, the health of the LTCH pipeline matters. Fewer LTCHs means more discharge pressure on nursing facilities — and that’s a dynamic the industry is watching closely.
