By: Robert L. Kane, M.D., and Rosalie A. Kane

Published: December, 2001

Medicare already plays a much larger role in shaping the nature of medical care than serving simply as an insurance program responsible only for paying for care. Medicare has assumed an active role in assuring the quality of the care it pays for and for determining how that care is provided. It is a short step to expanding its attention to issues that affect the functioning and health-related quality of life of its beneficiaries. By using its powers to determine the amount and nature of payment and coverage, Medicare can shape medical and health care for older people and focus its attention more squarely on the important aspects considered in this paper: functional abilities and quality of life.

Fundamentally, a public health care program has four potential policy arms: coverage, payment, regulation, and consumer information. Decisions about inclusion and the extent of coverage will affect care. In the context of improving function, rehabilitation is a potentially powerful tool. Because of fears that it would be overused, rehabilitation is defined narrowly in terms of likelihood of benefit on narrow parameters. Many of the policies regarding coverage of durable medical equipment seem to be so heavily designed to prevent abuse that they actually prevent clients from getting needed (and often simple) equipment that could greatly enhance function.

Once a service is covered, how it is paid for will help determine what happens in service delivery. Authorities have been hesitant to direct the nature of care under Medicare through payment incentives. The most substantial exception to that reluctance has been the implementation of the prospective payment system (PPS) for hospitals and more recently for post-hospital care. The press to extend PPS to post-acute care (PAC) seems somewhat simplistic, especially if the goal is to improve patients functioning and quality of life. A better approach would be to combine the hospital payment and the bundled PAC payment into a single payment. Such a step would provide powerful incentives to make workable and effective discharge plans and would simplify the assignment of responsibility for care outcomes.

If the desired emphasis in Medicare is increased attention to function and QoL, payment will need to be modified. In essence, without breaking the bank, it would necessary to rebalance the payments for highly technical services with payments for more basic primary care services. The present fee-for-service arrangement provides no payment for conducting screenings or assessments of functioning and QoL.

In general, to take full advantage of Medicare’s purchasing power, payment incentives should emphasize outcomes. At least a portion of the payment should be used to reward good outcomes. A major dilemma comes from the clash between outcomes-based reimbursement and case-mix reimbursement. Each is designed to create specific, but opposing incentives.

Medicare migrated to managed care in the hopes of controlling its costs, but managed care also seemed like a potential venue to emphasize the principles of geriatric care that attended to function and QoL. Unfortunately the actuality was disappointing. Given the way the capitation rates were designed, it was more efficient for plans to enroll healthier clients. Indeed, there is a disincentive for a plan to become known as skilled in meeting the needs of complex cases, lest it be deluged with such patients.

Regulation is an almost inevitable consequence of using public funds to pay for private care. Most of the regulatory energies under Medicare are channeled through the Peer Review Organizations (PROs). PRO mandates have changed over time; but they are basically charged to focus on what may be thought of as traditional quality concerns, namely the extent to which practice is in accord with extant standards, virtually all of which address fairly narrow medical concerns. Regulations in nursing homes (NHs) and home health (HH) address functional outcomes but do not emphasize QoL.

Regulation in post-acute and long-term care has become balkanized. Because each site of care has its own measures, it is difficult, if not impossible, to compare the QoL and functional results across sites of care at the very time when such comparative information about how different types of care influences the outcomes for various subgroups is desperately needed to make both policy decisions and individual determinations of what type of care is most suitable for a given client.

A number of options are available to use regulation more effectively in the service of improving function and QoL. Basic measures of health care quality could (and should) be expanded to include these components. Indeed, success in more limited spheres, such as improved clinical parameters, should be interpreted as simply an enabler of the ultimate test of success, improved function and QoL. Without these accomplishments, the goals of care cannot be judged to have been achieved.

While payment offers the most direct incentives to changing market behavior, a marketplace model suggests that information, wisely employed, can also shape events. Providing better consumer information on which providers and organizations do function-oriented and QoL oriented care, and which produce best outcomes could change the nature of medical competition. It is unclear just how much consumers of medical care, especially older consumers, are prepared to use such information to change their loyalties to specific health care providers, but more efforts to make such data available in user friendly ways should eventually lead to more informed and discriminating Medicare consumers.

A major barrier to incorporating function and QoL is the lack of an information system to collect such data. Information on function, based on some variant of the ADLs and IADLs, is now routinely collected for all patients receiving nursing home care, home health care and rehabilitation. Other patients in the medical care system do not have such information regularly recorded. It would require some sort of mandate to include it as part of the billing information.

Collecting QoL information systematically is much more difficult, and the systems to do so more rudimentary. Whenever possible, information on QoL should come from the persons who are actually living the lives—that is, the patients themselves. Inferring QoL from the reports of other interested individuals is hazardous at best, though special challenges arise in gathering the information from some older people who suffer from cognitive and/or sensory impairments.

Geriatrics has been historically hard to support on traditional Medicare fee-for-service payments. Comprehensive geriatric assessment programs, which have been shown to be effective in enhancing patients’ functioning and QoL, have not been financially self-sustaining.

The real challenge facing the Medicare program is how to align it with the epidemiology reality of a world dominated by chronic disease. The current acute care modus operandi is out of step. The extent of the needed change is considerable.


  1. Expand rehabilitation coverage to cover maintenance of function
  2. Allow more flexibility in choice of durable medical equipment.
  3. Fund demonstration projects to test the role of aggressive primary care in preventing hospitalizations and emergency room use.
  4. Revise the “homebound” rule for home health care receipt.
  5. Bundle the prospective payments for hospital and post-acute care for selected DRGs into a single payment.
  6. Revise the RBRVS to pay more for primary care by reducing payments for technical services.
  7. Encourage the use of geriatric nurse practitioners by paying them at the same rate as primary care physicians for comparable services.
  8. Pay for functional assessments as a variant of a laboratory test.
  9. Develop payment incentives for achieving good outcomes of care in both managed care and fee-for-service.
  10. Revise the payment system for managed care to remove the disincentive to enroll heavy care patients.
  11. Emphasize outcomes, expressed as the ratio of observed to actual, as the basis for regulation; include both functional and quality of life measures among the generic outcomes, as well as disease-specific outcomes where applicable.
  12. Apply negotiated risk approaches to long-term care planning and regulation to encourage more opportunities for clients to achieve a better quality of life.
  13. Include quality of life in the definition of outcomes for regulatory purposes, especially in nursing homes.
  14. Provide information on the outcomes achieved by various providers for various conditions in a form that is useful and meaningful to consumers. This may include relating the choices to individual consumers’ definitions of preferences for specific outcomes over others.
  15. Provide decision-making assistance to help consumers use the information effectively.
  16. Include information on functioning as part of routines billing data.
  17. Develop payment systems for comprehensive geriatric assessments.
  18. Encourage a shift in the approach to medical care that recognizes the predominance of chronic disease. Emphasis should shift from encounters to episodes of care. Management should be based on noting small changes in patients’ status and instituting early corrections.

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