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SNFs: What to do Now for October 1

As known by now, a lot of change is occurring with Medicare effective 10/1.  Daily, I field questions from around the country regarding what exactly is happening and what if anything an SNF should do to “minimize” the impact.  To a certain extent, at least as far as reimbursement reductions go, it is difficult and ill-advised to adjust too hastily or rapidly.  Longer-term planning is required to fundamentally, re-balance a payer mix.  This said however, all SNFs should be looking at their business models realizing that the long-term rate outlook on Medicare is best case flat, most probable declining.

Below I’ve accumulated and summarized, my top five recommendations/answers to the most common “what do we do next” questions.  For reality purposes, I assume (as it will happen) that rate reductions as called-for in the CMS final PPS rule will occur.  I understand that Congress may choose to intercede but given my sense of the current political climate and the economic issues at hand, I think it ill-conceived not to assume reduction and bet on “lobbying” to reinvent higher rates.

  1. Begin Balancing Your Payer Mix: Out of all of the SNFs I have analyzed recently, those that have a truly balanced payer mix with appropriate revenue sources will fare well to fairly well, even with the pending Medicare cuts.  Balanced looks different to different SNFs but in reality, they all share common traits.  First, Medicare isn’t their sole source of margin.  Second, their Medicare case-mix is well mixed with rehab and clinical qualifiers, perhaps a shade more clinically complex than rehab only.  Third, they have strong overall clinical competencies and thus, attract patients with other payer sources such as private insurance.  Finally, Medicaid is equal to or less than a third (no more) of their payer mix.  To balance an SNF payer mix, the facility/organization must undertake a strategy to define service/product mix, add clinical competency, build referral sources for different patients, and improve overall operating efficiencies aligning staffing and service delivery with effective care outcomes.  This strategy is not about optimizing Medicare reimbursement (though it does that), it’s about building a care engine that performs across payer sources.
  2. Develop a Solid Understanding of Medicare Reimbursement: Many providers I talk with have only a rudimentary understanding of the current PPS system and most of what they have learned comes from the wrong sources; sources that are partial to a particular bent or issue.  Even with the cuts, providers who understand how to take advantage of caring for a more clinically complex patient profile and get reimbursed for their work, aren’t horribly at-risk for major revenue swings.  They have developed internal core competency in coding, in managing the length of stay, and in capturing the true care needs of the patient.  They bring in the necessary training resources and have staff resources that help maximize their productivity and care delivery.  They know how the system works, don’t try to deny the changes, and develop the systems and the people necessary to be current, use the MDS effectively and capture the dollars in the form of reimbursement, correctly.
  3. Analyze the Impact: If reimbursement cuts are forthcoming, and they are, I hear too many vague generalities about how much and “the sky is falling” rhetoric.  Frankly, most providers I talk with haven’t modeled the financial impact as of yet and as the old adage goes, “you can’t begin to fix what you don’t know is broken”.  In some cases, simple tweaks to operations can improve the actual impact.  In other cases, changes to internal delivery systems, coding, etc. can improve the revenue impact (positively).  Suffice to say, knowing what the impact is today can help a provider hone in on what options are available to mitigate the “pending” damage.
  4. Understand the Totality of What is Changing: It is easy to reflect solely on one element of the Medicare equation that is changing in October; revenue or reimbursement.  The problem most providers also face is that certain systemic changes are occurring such as the allocation of treatment time for group therapy, the requirements for End of Therapy OMRAs and the Assessment Reference Date windows.  As October 1 is 30 days away, providers should have already gotten up-to-speed on these changes and begun implementing policy, procedure and systemic internal changes to address the new requirements.  As change requires education, adjustment, audits and then additional education and/or adjustments, starting too late equates to getting claims wrong.  Ask any provider that has gone through a probe or had claims rejected what that revenue impact is; far worse and impactful than a rate cut.
  5. Focus on Therapy: When I encounter SNFs with major Medicare issues, I see three common problematic themes.  First, for facilities that use outside therapy or contract therapy providers, the facility has “washed” their hands of the Medicare therapy issues.  This is a problem on so many levels.  As I have written before, the therapy company is not the  provider, the SNF is.  Under Part A, the SNF is always the provider and as a result, any problems caused by incorrect billing, improper care, improper coding, etc., perpetuated by a contractor is a problem for the Part A provider.  Basically, the liability cannot be ceded to a contractor.  The SNF must know as much about the provision of therapy under Part A as it does the provision of nursing care or any other discipline.  And most important, while therapy companies claim that they develop partnerships with SNFs, the reality is far from a true partnership.  For a partnership to actually occur, the risks and benefits must be equally shared.  Such is not the case in these relationships.  In this relationship,  each (the SNF and the therapy company) have different business and profit motivations such that at times, the interests may compete in ways deleterious to the SNF, left unabated.  Second, if a provider has its own program and staff, the therapy component is rarely fully integrated with all other care disciplines.  In short, all too often therapy is looked at as purely a profit center rather than an integral part of the clinical care delivery an SNF provides.  Therapy involvement, assessment, and integration into the total care plan of all residents/patients prevents problems in terms of care outcomes, helps capture additional revenue via reimbursement, and improves the overall clinical competency of the care team.  Third, all too many administrators have no idea the role therapy provides in their Medicare or general care delivery.  Suffice to say that if an Administrator wants higher per diems, better care outcomes, better compliance results, its time to learn the overall MDS and understand where therapy integrates in Medicare, how this system works (not just the revenue generated) and how therapy can improve the overall operating performance of an SNF (revenue and expense).

Before I conclude, I have three remaining suggestions to issues that I commonly address in the SNF world.  These suggestions are pertinent at all times for an SNF that is seeking to improve its operations, regardless of the reimbursement issues that are “at-play”.

  1. Develop Centers of Excellence: Trying to be all things to all patient types, etc. in an industry segment as wide as the SNF arena is a recipe for failure or at best, average to below average results (operating and other).  Not every SNF will excel in a post-acute, transitional care environment.  Markets are different, referral source needs are different, etc.  By developing an acute awareness of market needs, referral source needs, etc., an SNF can focus-in and develop, centers or “lines’ of care excellence.  Three things happen or should with this approach.  First, occupancy issues are less prevalent.  The SNF knows its flow of patients and can set aside the right amount of capacity for the length of stay and volume requirements dictated by a group of patients.  Second, efficiency in terms of staffing, supplies, programs, care plans, etc. can truly be developed.  Third, building a true revenue model is far easier.  A revenue model is driven by an expectation of certain occupancy, revenue streams from each patient type, and pricing/reimbursement models that accentuate revenue.  Expenses can then be matched accordingly.
  2. Suppress and Evaporate “Stupid Money”: Stupid money is dollars that are spent on things that can be controlled by an SNF or any business.  It saps resources and margin.  Common locations of stupid money are Worker’s Comp, agency use, over-time, supply waste, improper coding, fines, forfeitures, billing errors, staff turnover, and compliance/legal issues.  Minimizing the dollar flow and/or eliminating it for “stupid money” immediately improves the bottom-line.  I don’t know how many dollars over the years I have seen across all of the facilities I have been in that get wasted repeatedly, on stupid money issues.
  3. Develop Care Systems/Algorithms: SNFs that really excel financially and from a care/outcome perspective, have gotten very good at developing common protocols and algorithms for common admission diagnoses.  They have become efficient and effective at delivering high quality, lower cost care by reducing the variances and treatment fluctuations that arise when care is unplanned or uncoordinated.  They have developed formularies, treatment protocols, and outcome-based algorithms for the most common types of admissions and issues faced by patients within their settings.  Some have gone as far as to coordinate this work within their upstream and downstream referral networks (home health on discharge, hospital on admission/re-admission).  These SNFs make solid, repeat margins, have balanced payer mixes and are positioned appropriately for the next foray into healthcare reform; namely bundled payments, competitive bidding, ACOs and quality-based incentive payments.

September 1, 2011 - Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , ,


  1. Great thanks. Are you available this week?

    Comment by Kartik Nehru | October 10, 2011

  2. Thank-you. I’m glad I could offer some insight into the post-acute industry for you. I’ll be in touch via e-mail to coordinate a call.

    Comment by Reg Hislop III | October 10, 2011

  3. Hi there, I am a Columbia Business School student and am studying the LTAC pharmacy industry. Your articles are extremely informative and have helped me understand a lot of what I need to know. I have several questions about the industry and was wondering whether you had time for a phone call where I could ask you some questions. I am fundamentally interested in the long-term competitive outlook for a company like Omnicare. My email is If you have time for a phone call I would really appreciate it! Thanks.

    Comment by Kartik Nehru | October 9, 2011

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