Medicare costs quickly exceed projections.

To help appease the AMA, Medicare reimbursement to providers would not be based on fixed "rate schedules". Instead, reimbursement for physicians and other providers would be based on their "reasonable costs". This was intended to provide assurance that the providers would not lose money to encourage them to support and participate in the program, but it also meant there was no cap on program costs, nor any incentive for providers to control the amount of money they were spending.

Nursing homes were anxious to tap into this new Medicare program, and about 6,000 nursing homes applied for the ECF program when they were able to do so, but only 740 could meet the tough standards. By that time, it seemed politically inadvisable to leave so many homes out of the program, so a decision was made to allow in the facilities that failed to meet the standards, but which were in "substantial compliance", and 3,000 additional homes were accepted into the program on that basis. "Substantial compliance" just meant that they intended to fix anything that didn't meet the standards, but many of them never got around to doing that, and once they were in the program they weren't decertified. 

Nothing about the ECF program went as projected. Medicare ECF costs in the first year of the program had been estimated at $25-$50 million, but they ended up being $275 million. This huge overage came about for several reasons: 

• There were many more facilities in the program than had been budgeted for because of the admission of so many "substantially compliant" ECFs.
• The daily cost ended up being 50% higher than was expected, because the program reimbursed operators for their cost, using "cost-based reimbursement", without knowing ahead of time what those costs were or putting any caps on those costs.
• The 3-day hospital stay requirement did not end up reducing hospital costs or limiting the number of nursing home admissions. In fact, the 3-day hospital stay requirement may have actually increased costs when hospital discharges were postponed long enough to meet that requirement.