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Senior and Post-Acute Healthcare News and Topics

Health Systems, Hospitals and Post-Acute Providers: Making Integration Work

Early into the Trump presidency and health care/health policy is front and center.  The first “Obamacare repeal and replace” attempt crashed and burned.  The upcoming roll-out of the next round of bundled payments (cardiac and femur fracture) is delayed to October from the end-of-March target date.  Logically, one can question is a landscape shift forming? Doubtful.  Too many current realities such as the need to slow spending growth plus find new and innovative population health and payment models are still looming. These policy realities beget other realities. One such reality is that hospitals and health systems must find ways to partner with and integrate with, the post-acute provider industry.

In late 2016, Premier, Inc. (the national health care improvement organization) released the results of a study indicating that 85% of health system leaders were interested in creating expanded affiliations with post-acute providers.  Interestingly, 90% of the same group said they believed challenges to do so would exist (Premier conducted the survey in summer of 2016 via 52 C-suite, health system executives).  Most of the challenges?  The gaps that exist “known and unknown” between both provider segments (acute and post-acute) and the lack of efficient communication interfaces (software) between the segments.

On the surface, bundled payments notwithstanding, the push for enhanced integration is driven by a number of subtle but tactile market and economic shifts.

  1. Inpatient hospital lengths of stay are dropping, driven by an increasing number of patients covered by managed care.  Today, the largest payer source contributor of inpatient days, Medicare, is 30.6% “managed”…and growing.  Medicaid is 62.7% and commercial, nearly 100% (99%). Source: http://www.mcol.com/managed_care_penetration
  2. Payment at the hospital end is increasingly tied to discharge experience – what happens after the inpatient stay.  The onus today is on the hospital (and growing) for increasing numbers of patient types (DRG correlated) to discharge the patient properly such that the same does not beget a readmission to the hospital.  Too many readmissions equal payment reductions.
  3. Population health, focused-care models such as ACOs are evolving.  Their evolution is all about finding the lowest cost, highest quality centers of care.  Other BPCI (bundled payment) initiative projects such as Model 3, focus directly on the post-acute segment of care.  Unlike CJR (and the recently delayed cardiac bundles), the BPCI demonstration that began in 2013 covers 48 episodes of care (DRG based) and has participating providers (voluntarily) operating programs in all four model phases, nationwide.
  4. Patient preference continues to demand more care opportunities at-home.  Never mind the increased risk of complication with longer inpatient hospital stays (the risk of infection, pressure injuries, weight loss, delirium, etc. increases as stays increase), it is patient preference to discharge quickly and preferably, to home with services (aka home care).

Regardless the fate of Obamacare now or in the near future, these trends are unlikely to change as they have been moving separate from Obamacare.  Arguably, the ACA/Obamacare accelerated some of them.  Nonetheless, the baked-in market forces that have emanated from ACOs and care episode payments illustrate that even in infancy, these different models produce (generally) more efficient care, lower costs and improved patient satisfaction and outcomes.

As with any integration approach such as a merger for example, cultural differences are key.  The culture of post-acute care is markedly different from that of acute/hospital care.  For hospitals to appreciate this difference, look no farther than the two key determinants of post-acute culture: regulation and payment.  The depth and breadth plus the scope of survey and enforcement activity is substantially greater on the post-acute side than the acute side.  As an example, observe the SNF industry and how enforcement occurs.  Hospitals are surveyed for re-accreditation once every three years.  The typical SNF is visited no less than four times annually: annual certification and three complaint surveys.

In terms of payment, the scope is drastically different.  While hospitals struggle to manage far more payers than a post-acute provider, the amount that is paid to a hospital is substantially larger than that paid to a post-acute provider.  At one point years back, the differences were substantiated largely by acuity differences across patients.  While a gap still exists, it has narrowed substantially with the post-acute provider world seeing an increase in acuity yet lacking a concomitant payment that matches this increase.

Given this cultural framework, post-acute providers can struggle with translating hospital expectations and of course, vice-versa.  Point-of-fact, there is no real regulatory framework in an SNF under federal law for “post-acute” patients.  The rules are identical for a patient admitted for a short-stay or for the rest of his/her life.  Despite the fact that the bulk of SNF admissions today are of the post-acute variety, the regulations create conformity for residency, presumptively for the long-term.  Taking the following into consideration, a challenge such as minimizing a post-acute SNF stay to eight days for a knee replacement (given by a hospital to an SNF) is logical but potentially fraught with the peril presented by the federal SNF Conditions of Participation.  The SNF cannot dictate discharge.  A patient/resident that wishes to remain has rights under the law and a series of appeal opportunities, etc. that can slow the process to a crawl.  At minimum, a dozen or more such landmines exist in analogous scenarios.

Making integration work between post-acute and acute providers is a process of identifying the “gaps” between the two worlds and then developing systems and education that bridge such gaps. Below is my list (experiential) of the gaps and some brief notes/comments on what to do bridge the same.  NOTE: This list is generally applicable regardless of provider type (e.g., SNF, HHA, etc.).

  • Information Tech/Compatibility: True interoperability does not yet exist.  Sharing information can be daunting, especially at the level required between the provider segments for good care coordination.  The simple facts are that the two worlds are quite different in terms of paper work, billing requirements, documentation, etc.  Focus on the stuff that truly matters such as assessments, diagnoses, physician notes, plans of care, treatment records, medications, diagnostics, patient advance directives and demographics.  Most critical is to tie information for treating physicians so that duplication is avoided, if possible.
  • Regulatory Frameworks: This is most critical, hospital/physician side to the post-acute side, less so the other way.  Earlier I mentioned just one element regarding an SNF and discharge.  There are literally, dozens more.  I often hear hospitals frustrated by HHAs and SNFs regarding the “rules” for accepting patients and what can/cannot be done in terms of physician orders, how fast, etc. For example, it might be OK in the hospital to provide “Seroquel for sleep or inpatient delirium” but it is not OK in the SNF.  HHAs need physician face-to-face encounters just to begin to get care moving, including orders for DME, etc.  There is no short-cut.  Creating a pathway for the discharging hospital and the physician components to and through the post-acute realm is critical to keep stays short and outcomes high… as well as minimize delays in care and readmissions.
  • Resource Differences: Understanding the resource capacities of post-acute, including payment, is necessary for smooth integration.  What this means is that the acute and physician world needs to recognize that stay minimization is important but so is overall care minimization or better, simplification.  Unnecessary care via duplicative or unnecessary medications, tests, etc. can easily eat away at the meager margins that are operative for SNFs and HHAs.  For example, I have seen all too many times where a patient has an infection and is discharged to an SNF on a Vancomycin IV with orders for continued treatment for four more days.  Those four days are likely negative margin for the SNF.  A better alternative?  If possible, a less expensive antibiotic or send the remaining Vancomycin doses to the SNF.  Too many tests, too many medications, too much redundancy erodes post-acute margin quickly.  Finding common ground between providers with shared resource opportunities is important for both segments to achieve efficiency and still provide optimal care.
  • Language Differences: In this case, I don’t mean dialect.  Industry jargon and references are different.  I often recommend cheat-sheets between providers just to make sure that everyone can have a “hospital to SNF to HHA” dictionary.  Trust me, there is enough difference to make a simple working dictionary worth the effort.
  • Education/Knowledge: The gap between staff working in different environments can be wide, particularly as the same relates to how and why things are done the way they are.  For example, therapy.  Physical therapy in a hospital for the acute stay is markedly different than the physical therapy in a home health setting or a SNF setting.  Care planning is different, treatments similar but session length and documentation requirements are vastly different.  The clinical elements are surprisingly similar but the implementation elements, markedly different.  The notion that one staff level is clinically superior to another is long dispelled.  SNF nurses can face as many clinical challenges and perhaps more due to no/minimal immediate physician coverage, as a hospital nurse.  True, there are specialty differences (CCU, Neuro ICU, Trauma, etc.) but at the level where patients flow through acute to post-acute, the clinical elements are very similar.  The aspect of care differences and the how and why certain things are done in certain settings is where interpretation and education is required.
  • System and Care Delivery: While the diagnosis may follow, assuring proper integration among the various levels or elements of care requires systematic care delivery. The best language: clinical pathways and algorithms.  Developing these across settings for an episode of care creates a recipe or roadmap that minimizes redundancy, misinterpretation, and lack of preparation (all of which create bad outcomes).  With these in-place, common acute admissions that beget post-acute discharges, places every care aspect within the same “playbook”.

 

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March 28, 2017 Posted by | Home Health, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , | 2 Comments

Seniors Housing/CCRC Outlook plus Lessons from Brookdale

Now that the real estate dynamics have shifted on-balance to par or better (majority of markets can liquidate inventory at stable or rising prices with constant or modestly increasing demand), the outlook for Seniors Housing (IL, AL and CCRC) is less murky. The recessionary of the last 7 to 8 years has lifted.  What is visible, while still fairly complex market to market, is a picture that is illustrative for the next ten or so years – ample to adequate supply and average to slightly soft overall demand.  Perhaps, this is the Brookdale lesson?

Amplifying the above; what we know statistically is that demand has globally peaked and now, flattened.  Recall that Seniors Housing is very much local and regionally biased/impacted so some markets may be hotter in terms of demand than others.  By example, in 2010 (full recession impact), occupancy in the sector was 86.7%.  By the end of 2014 and since, occupancy has recovered but only to an average of 90% (per the National Investment Center).  During this same later period, new unit production has increased to an average of 3,200 per quarter (trailing seven quarters since end of 2016).  This is a 50% increase over the prior eight quarters.  The cause? Less about occupancy reality, more about a growing optimistic economic outlook, improving real estate dynamics (the leading cause) and more accessible capital, particularly as nontraditional sources have entered the sector with vigor (private equity).  A quick translation is for an increase of approximately 5,000 additional units in the top 31 MSAs (could be as much as 6,000 depending on where the units are in the development cycle).  This additional inventory is entering a market that is showing signs of over-supply (again, is there a Brookdale lesson here?).

occupancy-web

In multiple articles, I have written about phantom or perhaps more accurate, misunderstood economic and demographic trends.  Seniors housing global demand is very elastic, particularly for IL and CCRC projects that are at or above market (where the bulk of the industry is).  Demand elasticity exists where and when, price directly impacts the number of and the willingness of, consumers to consume a particular good or service. As price rises, the number decreases.  As price falls, the number increases.  For seniors housing, the elasticity wanes and trends toward inelastic demand when the price mirrors “rent controlled or modest income” housing.  In this case, demand is constant and actually inverse proportionately (more demand than supply). Better real estate economic conditions and improved investment market conditions (stock market, investment returns, etc.) influence to a lesser extent, the demand outlook as stronger or stable wealth profiles for consumers reduces the anxiety of purchase, especially where entrance fee models are concerned.

From a demographic perspective, the issue at bear is the actual or real number of seniors in the target age range with an economic wherewithal to consume (have the financial capacity).  Only (approximately) ten percent of all seniors 75 and above reside in seniors housing specifically (IL or CCRC) and a slightly larger (aggregate)number now reside in quasi-seniors housing projects (age limited housing developments ala Del Webb).  Between 2010 and 2016, the 75 plus population grew at an anemic rate of 1.8%.  The expected rate of growth for this cohort over the next five years increases to 3.8%.  More telling, for this same period, the subset of 75-79 grows at a rate of 5.7%.  These numbers present a bit of optimism but in real terms, the demand change (within the demographic) doesn’t create sufficient opportunities for absorption of the inventory growth, if the same remains at its present pace.  The demographic fortune doesn’t really begin to change dramatically until 2021 and beyond.  At 2021, the group turning 75 represent the start of the baby boomers (2021 -75 = 1946).  Prior to this point, the demographics of seniors 75 and above still reflect the World War II trend of birth suppression.

To Brookdale. The operative lesson is that Brookdale has far too much supply for the real organic demand that exists for plus market rate, congregate seniors housing. In my outlook comments below, readers will note how the demand around seniors housing and the congregate model is actually shifting slightly which has negatively impacted Brookdale. The acquisition of Emeritus has since offered proof of some age-old adages regarding Seniors Housing: local, not conforming to retail outlet strategies, very elastic demand, tough to price inflate for earnings and margin, asset intense and thus capital re-investment sensitive, and of course, full of me-too projects that are difficult to brand differentiate.  In the Emeritus acquisition, economies of scale and cultural assimilation proved difficult but frankly, such is always the case. The real crux is that the retail outlets (the Emeritus properties) were not accretive -seniors housing doesn’t quite work that way.  While the asset value of Brookdale skyrocketed, the earnings on those assets retrenched.  With soft demand and a lot of congregate projects highly similar and no room at the ceiling for price elevation, a fate accompli occurred.  The lesson?  Certain types of Seniors Housing is about played out (vanilla, above market projects) and a heavy concentration of this in a portfolio will evidence occupancy challenges and rental income return challenges (no price inflation).  Demand is also soft for reasons mentioned above, primarily demographic but also still, economic in some instances.  Similarly, as I mentioned above, seniors housing is very local.  A retail brand strategy simply (the Wal-Mart concept) won’t work.  Residents identify brand to local or at best regional – national means nothing.  If the market isn’t supportive regardless of who or what it is, the project will be challenged.  Emeritus brought too many of these projects into the Brookdale portfolio.

Below are my key outlook points for 2017 and the next five or so years for IL and CCRCs (non-affordable housing).

  • Demand across most property types will remain soft to stagnant.  This means 90% occupied is a good target or number.  Of course, rent controlled projects will continue to experience high demand, particularly if the projects are well located and well-managed.  Regional and local demand can and will vary significantly.  The projects that will experience the softest demand are above market, congregate, non-full continuum (non-CCRC).  Projects with the best demand profile contain mix-use, mix-style accommodations with free-standing and villa style properties.  While highly amenitized projects will attract traffic, demand isn’t necessarily better due to price elasticity in the segment.
  • Improving economic conditions/outlook will undergird and help bolster demand, though the demographics still trump (no pun intended). Some notes to consider.
    • The real estate economy can benefit, even with a slightly higher interest rate trend, if employment and wages continue to strengthen and de-regulation of some current lending constraints occur.  I think the latter two points offset any interest rate increases in the near to moderate term.
    • Rising interest rate fortunes help seniors more than stock market returns, though this trend is changing as seniors have been forced to equities to bolster return.  Still, most seniors are highly exposed to fixed income investments and a somewhat improving interest rate market will improve income outlooks.  Better or improved income does psychologically impact the consumption equation, “positively”.
    • Capital access will remain favorable/positive and banking de-regulation to a certain extent, may push banks back to the sector (they have been shy to seniors housing for the last 5 to 8 years).
    • Even with improved economic conditions, the mismatch between demand and supply (discussed earlier) will restrain rent increases in the near term.  This could present some modest operating challenges for the sector as price inflation on wages, etc. will occur before any opportunity to raise fees/rent.  The net effect is a modest erosion in margin.  I don’t see much opportunity to fight this effect with increased occupancy.
  • Increasing occupancy or in some cases, staying at current occupancy levels will continue to require incentives.  Incentives negatively impact revenue in the short-run.
  • The average age for residency on admission and across the product profile will continue to move up as a general rule.  In addition, the resident profile will continue to slide toward additional infirmity and debility.  Providers will continue to work to find ways to keep projects occupied by offering aging-in-place services.  While this is a good strategy to a certain extent, the same does harm or impact negatively, the ability to market and sales-convert, units to a more independent resident profile.  I liken this to a “rob Peter to pay Paul” approach.  It works but not without side-effects and perhaps, unintended consequences that can be very deleterious “down-the-road”.
  • The additional inventory that is coming into the sector won’t slow down for another two or so years.  This is in-spite of a weak to stagnant demand.  Some investors and developers are willing to be somewhat ahead of the baby-boomer curve even though I believe this is unwise (see next point).
  • The reason I believe the baby-boomer impact for the sector will be modest and actually, disheartening is that the demographic shift doesn’t equate to product demand directly.  Boomers have an increasingly different view of the world and a different set of housing and lifestyle expectations plus economic capacity.
    • The first group of Boomers was hurt the hardest by the most recent recession.  They lost a great deal of wealth and income profile as many were the first displaced as jobs eroded (oldest employees, highest paid). They also have less employment time to recoup any income/savings losses.
    • Generationally, their savings rate is significantly less than their parents.  These folks, while still more modest in comparison to Boomers born five to ten years later, didn’t delay gratification or extravagance the way their recession-influenced parents did.  Less overall wealth negatively impacts their ability to afford higher-end seniors housing.
    • Congregate living (apartments) is less their style.  They are the first age group (Boomers) used to a more expansive living arrangement.  While they’ll move eventually, they will not see 1,200 sq. feet at $4,000 a month as attractive (not even at $3,000). They will have unfortunately, mismatched expectations in terms of “size” versus cost.  They’ll want larger but for less rent than realistic.
    • They are generally healthier with a different view of age related to retirement and retirement residency.  Don’t look for 75 year older Boomers to be horribly interested in a CCRC or Seniors Housing development, particularly if their health is good.  They’ll wait until 80 or older to trigger a move.
    • Boomers are more mobile and more detached than their parents.  This means in-market moves and the traditional radius markets/math will be less applicable year-over-year with Boomers.  They will be willing to shop broader and do so more for value and price – more for less or at least, a perception of the same.  They are nowhere near as homogeneous by social construct as their parents.
  • Greater pricing flexibility will continue to evolve.  This means different entry-fee options, monthly service options with/without amenities, more ala carte, etc.  Service infrastructure for certain communities may suffer as residents will continue to want more choice but less bundle (won’t pay inflated fees for what they perceive as things they don’t use or want).
  • Because the sector is highly influenced and trended local, some markets will continue to thrive while others will continue to struggle, regardless of national trends.

 

March 3, 2017 Posted by | Senior Housing | , , , , , , , , | Leave a comment