A federal judge in Vermont may soon act to approve a proposed settlement in a national class action suit, Jimmo v. Sebelius. In the case, the plaintiffs argue that Medicare contractors and administrative officials have been denying nursing and therapy services for patients who were not expected to show long-term improvements in their medical conditions. Patients with chronic conditions like multiple sclerosis, Parkinson’s disease, paralysis, cerebral palsy, skilled nursing visits for insulin injections for diabetics, and Alzheimer’s were denied Medicare and Medicare Advantage benefits under this so-called “Improvement Standard,” the lawsuit alleged.

The “Improvement Standard” refers to a standard that Plaintiffs have alleged, but that Defendant denies, exists under which Medicare coverage of skilled services is denied on the basis that a Medicare beneficiary is not improving, without regard to an individualized assessment of the beneficiary’s medical condition and the reasonableness and necessity of the treatment, care or services in question.

The agreed-upon changes would alter the Medicare manual to say that eligibility for skilled-nursing, home healthcare and outpatient physical therapy services coverage “does not turn on the presence or absence of beneficiary’s potential for improvement from the therapy, but rather on the beneficiary’s need for skilled care,” the settlement says. The proposed settlement would result in changes from the Centers for Medicare and Medicaid Services to its subregulatory guidance contained in the Medicare Benefits Policy Manual to clarify that therapy services in home health, skilled nursing facilities, and outpatient physical therapy are covered so long as the patient is eligible for the services regardless of their clinical prospects for improvement.

The impact of the settlement could be far reaching. Most importantly, the changes will prove helpful to chronically ill patients that are currently unable to access Medicare post-acute care services. Providers will still have to document that the services provided are “reasonable and necessary” for the diagnosis or treatment of a medical condition. They will also have to justify why skilled care is required. The focus on the skills needed to provide care rather the need for improvement will expand the number of Medicare beneficiaries eligible for post-acute care services.

The Settlement’s Potential Impacts

The overall impact on federal expenditures is unknown. On the one hand, financing post-acute care for stroke, Alzheimer and other patients could increase Medicare spending. Other channels of spending could decline to the extent that some of these services were funded for dual eligibles through the Medicaid program.

Palliative-care models. The decision could also have more important and far reaching implications for the expansion of evidence-based palliative care models. Evidence is mounting that coordinated palliative care — an interdisciplinary specialty that works to improve quality of life for patients with advanced illness — can enhance patient and family wellbeing and potentially save money. Hospital based palliative care programs have expanded rapidly since 2000. The number of palliative care teams in hospitals has tripled since 2000, to 63 percent today. The pending settlement could provide further incentives for more rapid diffusion of such models.

Pointing the way toward further changes. The settlement also raises a more fundamental question about the future of Medicare. Post-acute care spending overall could be reduced if the program adopted more bundled payment reforms and moved away from a siloed fee-for-service payment system. A move toward bundled payments would provide strong incentives to develop more innovative and effective approaches for post-acute care.

While the proposed settlement would expand coverage to additional patients, Medicare still restricts the use of home health and care coordinating services to a limited set of Medicare patients. Today, only homebound Medicare patients are eligible to receive home health care benefits — about 10 percent of all patients. However, virtually all spending in the Medicare program is associated with chronically ill patients, homebound and non-homebound.

Non-homebound patients with multiple chronic health care conditions in the traditional fee-for-service Medicare program would be the only patients not eligible for any care coordination services. Indeed patients with hypertension, diabetes, hyperlipidemia, hypertension, asthma, pulmonary disease, back problems, and depression are common patient profiles in the Medicare program. Yet, unless they are homebound, they are not eligible for any type of home health or care coordination services.

Including evidence-based care coordination services into the traditional fee-for-service program has great promise for reducing costs and improving health care outcomes. Indeed, transitional care programs have been shown in randomized trials to reduce hospital readmissions by 50 percent in Medicare populations, saving an average of $5,000 per patient. Adding other care coordination functions to manage non-homebound patients with multiple chronic conditions — such as comprehensive medication therapy management, health coaching, and the use of health teams — would add to these savings. These are services commonly found in Medicare Advantage plans, particularly the Special Needs Plans, but not in traditional Medicare.

The Jimmo v. Sebelius proposed settlement points us in the right direction, but even broader reforms need to be integrated into the Medicare program. Increasing access to skilled services based on patient need not expected outcome is certainly a move in the right direction. However, an even larger challenge facing the program is providing evidence-based prevention and care coordination programs for the 90 percent of Medicare patients that are not homebound. These interventions, based on data from  randomized trials, show great promise for reducing costs in the program and improving quality, two key goals for the next stage of health care reform.