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CMS Proposes New SNF Payment Model

Last Friday, CMS released the contents of its annual proposed rule updating the SNF PPS plus (as always), fine tuning certain related programmatic elements. Final Federal Register Publication is set for May 8.  (Anyone wishing the PDF version may download it from the Reports and Other Documents page on this site or access it here SNF Proposed Rule 4 2018 ).  The most watched information for providers is the proposed rate adjustment though lately, for the post-acute segments of health care, other elements pertaining to payment model changes have eclipsed rate “watching”.

Last year’s proposed rule for the SNF PPS contained the release of RCS-1.  After extensive commentary, CMS pulled back RCS-1, shelving it for some conceptual remake.  We now, as of Friday, know the remake – PDPM for short (Patient Driven Payment Model). As with all yearly releases similar, a comment period has begun, lasting until (if not otherwise extended) the last week of June (June 26).

PDPM as proposed, is designed to replace the current SNF payment methodology known as RUGs IV.  Unless date changes, etc. are made by CMS post commentary review, the effective date of the change (from RUGs to PDPM) is 10/1/19 (next October).   PDPM as an outgrowth of RCS-1 and received commentary, is a simplified payment model designed to be more holistic in patient assessment, capture more clinical complexity, eliminate or greatly reduce the therapy focus by eliminating the minute levels for categorization, and simplifying via reduction, the assessment process and schedule (reduced to three possible assessments/MDS tasks). Below is a summary of PDPM core attributes/features as proposed.  On this site in the Reports and Other Documents page is the PDPM Calculation Worksheet that provides additional details beyond the reference points below PDPM Calculation for SNFs.

  • PDPM uses five, case-mix adjusted components for classification and thus, payment: PT, OT, Speech, Non-Therapy Ancillary and Nursing.
  • For each of these components, there are separate groups which a resident may be assigned, based on MDS data.  For example, there are 16 PT groups, 16 OT groups, 12 Speech groups, 6 Non-Therapy Ancillary groups and 25 Nursing groups.
  • Each resident, by assessment, is classified into one of the group elements within the component categories. This means that every resident falls into a group within the five case-mix components of PT. OT, Speech, Non-Therapy Ancillary and Nursing.
  • Each separate case-mix component has its own case-mix adjusted indexes and corresponding per diem rates.
  • Three of the components, PT, OT and Non-Therapy Ancillary have variable per diem features that allow for changes in rates due to changing patient needs during the course of the stay.
  • The full per diem rate is calculated by adding the PT, OT, and Non-Therapy Ancillary rates (variable) to the non-adjusting or non-variable Nursing and Speech components.
  • Therapy utilization may include group and/or concurrent treatment sessions provided no more than 25% of the total therapy utilization (by minutes) is classified as group or concurrent.
  • PT, OT, and Speech classification by group within their respective components do not include any function of “time”.  The sole denominator of how much/little therapy a resident receives is the necessity determined by the assessment process and by the clinical judgment of the care team.  In this regard, the minimum and maximum levels are based on resident need not on a predetermined category (RUG level).
  • Diagnoses codes from the hospital on admission (via ICD-10) are important and accuracy on the initial MDS (admission) are imperative.
  • Functional measures for Therapy (PT, OT) are derived from Section GG vs. Section G as provided via RCS-1.
  • The Non-Therapy Ancillary component allows facilities to capture additional acuity elements and thus payment, for additional existing comorbidities (e.g., pressure ulcers, COPD, morbid obesity, etc. ) plus a modifier for Parenteral/IV feeding.
  • There are only three Medicare/payment assessments (MDS) required or predicated starting in October of 2019 – admission, change of condition/payment adjustment and discharge. NOTE: All other required MDS submissions for other purposes such as QRP, VBP, Quarterly, etc. remain unchanged.

For SNFs, the takeaways are pretty straight-forward. First, clinical complexity appears to be the focus of increased payment opportunity.  Second, therapies are going to change and fairly dramatic as utilization does not involved minutes and more is better, when clinically appropriate but less is always relevant (if that makes sense).  The paperwork via MDS submissions is definitely less but assessment performance in terms of accuracy and clinical judgment is increased.   MDS Coordinators, those that are exceptional clinicians and can educate and drive a team of clinicians, will be prized as never before.  RUG style categorization is over so the focus is not on maximizing certain types of care and thus payment but on being clinically savvy, delivering high quality and being efficient.  The latter is what I have been preaching now for years.  Those SNFs that have been trending in this direction, caring for clinically complex patients, not shunning the use and embrace of nursing RUGs, and being on the ball in terms of their assessments and QMs are likely to see some real benefits via the PDPM system.

More on this new payment model and strategies to move forward will be in upcoming posts.

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May 1, 2018 Posted by | Policy and Politics - Federal, Skilled Nursing, Uncategorized | , , , , , , , , , , , , , | Leave a comment

Is a Paradigm Shift Starting in Senior Living?

A number of years ago, post-acute/senior living analysts, etc. started warning of a coming paradigm shift for skilled nursing and home health.  I started writing and advising about this shift well over a decade ago.  The signs were obvious.

  • Rapid expenditure growth as a percentage of Medicare/Medicaid outlays.
  • MedPac warnings to Congress of rising profit margins in these industry segments.
  • Increasing reports from the OIG and other agencies substantiating billing abuse and likely, widespread fraud.
  • Rapid agency and outlet growth.
  • Rising per unit prices and cap rates.
  • For SNFs REIT deals and rental rates that were clearly, unsustainable given the market conditions and policy trends.
  • Overall reimbursement dynamics including passage of the Affordable Care Act that foretold stable to shrinking Medicare reimbursement.
  • Increasing Medicare Advantage penetration.
  • Increasing Medicaid funding problems at the state level and increasing conversions of state programs to Managed Medicaid platforms.

The handwriting was on the wall and even without a clear crystal ball, I began warning those that would listen (from clients to students to industry watchers) that the post-acute provider segments of SNF and Home Health would face stiff headwinds and the unprepared and unimaginative, suffer losses and operating struggles unlike any in recent times.  As much as I loathe the “I told you so” speeches or references, the proof today is in the news constantly.  One need (only) reference Genesis, HCR/ManorCare, Skyline, Signature, Kindred, Amedysis, Gentiva, etc. (I could go on) now versus ten years ago (or less) for validation.  The paradigm of ratchet-up fee for service Medicare encounters, particularly therapy related, increase outlet span, more is better, bigger is better, don’t worry about quality metrics, and find ways to minimize top line operating costs, etc. ended with a resounding THUD (you (and I) knew it would).

To the question posed as the title: Is Seniors Housing/Living starting a similar paradigm shift?  Because such shifts start gradual and pick up momentum as the “trend” winds strengthen, its easy to claim “no” or to ignore the bits and pieces that are the harbingers; a nod to a point-in-time. Lately, I have had an increasing number of conversations with learned folks and those heavily invested in the “housing” elements (independent and assisted) of senior living.  To a one, they all remained bullish for principally ONE reason – demographics.  Each points forward to a rising or swelling tide of senior citizens; byproduct of the great Baby Boom. With confidence, I hear an argument for a demand proposition that current and even near term supply, won’t meet.  This is in spite of the current reality that supply is greater than demand and occupancy is declining consistently, not increasing.  The Brookdale argument is thus: Give it time, the residents are coming and occupancy will improve.  I am skeptical.

The economist in me is uncertain that other factors aren’t more in-play than accounted for or buffered by the “demographics” justification.  For example, the notion that this Baby Boomer customer is the same customer that has been consuming and driving the current seniors housing paradigm is I’ll argue, a false premise.  Their sheer numbers alone won’t guarantee supply consumption.  Students of economics and history will find lessons aplenty such as the death of steam locomotion, coal power generation (though not fully dead), wired television, cassette format video and audio, etc.  The customer bases for these products or industries never shrunk and in fact, they grew in number and purchasing power.  Other dynamics shifted the demand curve ever so slightly for alternatives initially, then rapidly as the same came to the market and price points shifted. The fallacy is that demographics by number alone mean a sustainable market.

Seniors housing has a very elastic demand curve.  The crux of price elasticity is that the greater or higher the price, the smaller the number of buyers.  For the demographics of the coming wave of future seniors to be a demand boon for seniors housing, they (the seniors) must have purchasing power to consume the supply of product at the price levels current and future.  This group must also have limited or no more than present, alternatives to the product (a fixed base residence).  As their power to consume is measured by wealth, wealthier folks demand more alternatives and have more options.  For example, a woman with a million dollar net worth and a $200,000 annual income can arguably buy 90% of the new automobile models (personal use) produced in a given year. She may buy a Rolls Royce or a Honda Fit.  A woman with a ten thousand dollar net worth and a $20,000 annual income probably can’t buy any of the new automobile models and will need to use public transportation or acquire a very, very used car. As is the economic constant, shifts in wealth and substitution products across the price spectrum will influence supply or products and the prices thereof.  Today, there is a bit of a supply inequity in seniors housing and as such, occupancy has trended down.

The supply inequity is seen via the homogeneity of the product, especially product that has come on the market within the last decade.  Where occupancy is consistently high, the product is market or less than market, priced.  Value-based products with or without services are more occupied than their above market competitors today.  Fewer in number, their supply is consumed plus and in constant demand.  I know today of no market or below market (subsidized or rent controlled) seniors housing that is good condition, in a good location (not crime ridden, etc.) that isn’t full or close to full – constantly.

To be clear, I am not anti or even really too bearish (yet) about seniors housing, assisted or independent.  I was never totally bearish about the SNF and Home Health sector, just the paradigm that was operative.  I believe that strategically aligned, market-sensitive product and providers will always do well.  Unfortunately however, I also believe that too many seniors housing units and operators are “me too” driven, emphasizing a “same-same” approach.  I find it hard to believe that the look-alike, feel alike, same amenities, different location or even similar location can be justified by “coming” demographics when similar providers, at similar price-points are at five-year occupancy lows.  All too often, I am reminded of conversations I had with SNF operators telling me their justification for acquisition and the price per bed paid was: “We are different.  We’re going to drive Medicare census to 40 plus percent, raise acuity and RUG levels, utilize technology to be superefficient, etc.”  And when I would say “how” and show me where “you” had done this before and maintained high-quality, etc. and negotiated far better rates with the growing Medicare Advantage market, I got the typical ‘ignore’ response.  Suffice to say, I was never proven wrong.

Because I will be asked, here’s what I am seeing that suggests the beginning of a paradigm shift for seniors housing – biggest for Assisted Living but still palpable and impactful for Independent Living.

  • While the demographics are good, the economics of the demographics are not as good.  Baby Boomers will simply not have the same economic wealth and thus purchasing power of their parents and grandparents.  While some will have done well, the decades of their work and maturation cycle did not see the same kind of wealth and economic expansion that occurred for their parents.  One simple measure very much tied to seniors housing is worth review – residential real estate.  Most Boomers will have had multiple homes and have consumed large portions of their equity to “buy-up” or to adjust lifestyle.  Their parents did not (home equity loans didn’t exist).  Most Boomers also will have started with a more expensive home basis than their parents and thus, will not see the value appreciation.  For example, I know many seniors that bought their home for $40K and sold it for $400K – appreciation of ten-fold.  For a $100,000 Boomer investment to reap the same, the appreciation would need to be $1,000,000.  This is just price.  If I factored in life-cycle cost, the net is far worse (higher interest rates, taxes, etc. over the ownership period).
  • Seniors housing is not getting cheaper.  In many regards, driven by market forces to be more opulent, bigger, better, more amenities, etc., it is getting more price inefficient (cost per square foot needed to sustain).  As the price rises, the product demand becomes more elastic and the number of consumers economically capable of consuming, fewer.
  • Alternative products are increasing and ala carte service providers, expanding. Where staying “at-home” was not much of an option a decade or so ago, it is becoming easier with technology and  service availability that suppports, aging in-place.
  • Planned development communities that are geared toward active, younger seniors are consuming a market segment between 65 and 80.  These communities have club houses, maintenance services, etc., and are typified by private homes, developed to accommodate early level disabilities (no stairs, grab bars in bathrooms, etc.).
  • Because of the point prior, the migration age to seniors housing is increasing accompanied by additional disability.  The more frail and disabled this cohort becomes, the more difficult it is for the provider to keep costs low as operations must support the true needs of the resident.  This is a real problem for Assisted Living as occupancy today is often predicated on catering to a much more frail and debilitated client, many who as little as five years prior, would have resided in a nursing facility.
  • Lastly, the market trends and information are illustrative of the harbingers of a paradigm shift.
    • Weakening cap rates and per unit values
    • Over-built markets with product, still coming into a market already below 90% occupied and trending lower.
    • Brookdale  (enough said)
    • Chinese investors pulling back from the sector – more cautious investing
    • Period over period occupancy declines in the industry – Assisted now at just over 85%!
    • Per NIC 22 of the top 31 markets saw occupancy decline, quarter over quarter
    • Rising cost of capital and fewer starts (finally).  This may actually be a good thing as the sector needs some leveling forces.
    • Rising labor costs.  Again, this may be a good thing.
    • Federal and state-to-state pressure for Assisted Living regulatory actions.  Again, this may be a good thing as too many ALFs are over their-skis in terms of capability to take care of their resident populations.
    • For providers reliant on Medicaid-waiver clients to bolster occupancy, we are seeing rate “reductions” consistently in these programs and know of more to come (no increases yet).

In an upcoming article, I’ll offer some thought on what is working and why and where the market will be for seniors housing and why over the next decade or two.

 

April 26, 2018 Posted by | Assisted Living, Senior Housing | , , , , , , , , , , | 1 Comment

SNFs and the Medicaid Conundrum

What do Morningside Ministries in San Antonio, Genesis Healthcare, Signature Healthcare, HCR ManorCare, and Syverson Health and Rehab in Wisconsin have in common?  Answer: A terminal relationship with Medicaid. While Genesis isn’t “dead” yet, it is fundamentally on life support with a stock price of $1.50 per share and a Medicaid payer mix averaging 73%.  HCR ManorCare is in bankruptcy. Morningside Ministries closed a facility in San Antonio as it simply could not survive on the Texas Medicaid payment at its Chandler Estate facility.  Syverson in Wisconsin is among a slow growing list of SNFs that cannot financially exist under Wisconsin’s Medicaid system – the poorest payer in relation to cost in the nation.

For the vast majority of SNFs nationwide, Medicaid is a conundrum; a Catch 22 of epic proportion.  It is by far, the dominant payer source for LTC among the elderly and thus, the largest payment source for SNF residents when they enter an SNF or fall back on, shortly (typically within 6 months) after their admission.  For the average SNF (and majority of the universe), an unwillingness to openly accept a Medicaid resident equates to an empty bed and no (zero) revenue.  This phenomenon is the Medicaid conundrum – damned if you do, damned if you don’t scenario.

Few SNFs have the reputational excellence, the referral base, capacity limitation and payer source alternatives to minimize or limit, their Medicaid admissions.  Those that do typically are less than 75 beds in capacity and all private rooms, located within an affluent or fairly affluent community, are attached or part of a referral source such as a retirement community or a hospital system, have high star ratings and a good survey/compliance history, and have strong amenity features and equally strong customer reviews/experiences to market.  In such rare or atypical circumstances, the facility is able to control its Medicaid exposure to less than a third of its payer mix.

At greater than a third or so of its payer mix, the SNF is forced to undertake operational strategies and approaches anathema to resident interests and thus, business stability.  First, the SNF must minimize its fixed expenses if possible.  In organizations/facilities where rent payments and debt payments were high comparatively and no opportunity to reduce these payments available, the SNF was vulnerable to any vacancy and to any substantive changes in other payer sources.  This is the demise scenario for HCR ManorCare, Signature and Genesis. Too much of their revenue component was allocated to fixed rent/occupancy costs.

Second, with high Medicaid census, the SNF is forced to be vigilant on variable expenses, predominantly staffing hours and staff mix (professional licensed to unlicensed).  While expense vigilance is good in any business, SNF staff to resident ratios (gross) and by acuity adjusted, are corollary to good care results.  Too few staff, care suffers.  Too few licensed staff and care really suffers.  Today, the regulatory/compliance environment is keenly focused on staff numbers, compliments by license, and competency levels.  In fact, the Phase II implementation of the new(er) COPs for SNFs (new since fall 2016) require facilities to conduct an assessment of resident care needs and conditions and to assure that the same are matched with staff adequate in number and competence to provide care for identified needs and conditions.  Citations today, classified as jeopardy or actual harm, come with instant fines/forfeitures attached, starting at the date of the violation.  It does not take long for an Immediate Jeopardy citation to accumulate a fine of tens of thousands of dollars.

Third, higher Medicaid census requires revenue offsets via other payers such as private insurance, private pay (resident funds), and/or Medicare and Medicare replacement.  The Catch 22 is that the higher the Medicaid census, the greater the reliance the facility has on these other payers.  A facility thus, experiencing any kind of quality or reputation problems, will experience difficulty attracting these higher payers, in sufficient number, to offset the Medicaid “payment effect”.  Vacancies increase and feeling pressure that any occupant is better than none, Medicaid census slowly increases.  Depending on the fixed cost level for the facility, coverage of rent or debt may become problematic (Signature, Genesis, etc.) whereby the attainable EBITDAR is less than the rent or occupancy payment due (coverage below 1).

For the large majority of the industry, the Medicaid Conundrum is worsening as the overall revenue perspective/outlook tightens while operating costs are slowly but steadily increasing, due to:

  • Wage inflation.  An improving economy and employment outlook at the $15 an hour and under labor strata has place wage pressure on SNFs.  The lower to middle end of the SNF workforce is in high demand in many markets meaning that employers are competing for the same basic labor hours across multiple industries.  A typical SNF CNA may find today, equal or better wage opportunities at a Costco or Wal-Mart with “better” working conditions (no customer fannies to wipe, drool to manage, etc.), less physical demanding and more “fun” in terms of atmosphere.  Given the 24 hour/365 labor demands of a SNF, a $.50 increase in hourly compensation can quickly equate to     in a 100 occupied bed facility.  If the facility is in Missouri or Kansas, this increase in operating cost is juxtaposed with a Medicaid rate cut.
  • New Conditions of Participation for SNFs (federal regulations) are phasing in and the cost of compliance is increasing.  Regulatory requirements for facility assessments that drive staff hours and mix plus more emphasis on documentation, training, physician and pharmacy engagement, etc. are adding to operating cost.  Again, this is occurring while rates are flat or in some states, decreasing.

And, while operating costs are slowly increasing, revenue make-up/alternatives to Medicaid are eroding.

  • Other payment sources, particularly Medicare, are not increasing fast enough (if at all), to soak-up the expense increase or Medicaid rate reduction.  In the case of Medicare, an increasing number of SNF days are paid for by Medicare Advantage (replacement) plans.  These plans do not operate EXACTLY like fee-for-service Medicare in so much that they may pay less per diem (and do) and may manage utilization (length of stay) to minimize overall expenditure risk of the plan.  In some markets, the Medicare Advantage beneficiaries are equal to or greater in number for an SNF than the fee-for-service beneficiaries.
  • Shifting care and referral pattern trends have reduced the overall need for a utilization thereto, of SNF beds.  Simply, there is less overall demand for SNF beds than total supply.  Occupancy levels nationally have shrunk year over year for the past decade and additional shrinkage is forecasted until closures reduce supply closer to demand.  In certain areas, the supply may be as much as one-third greater than the demand/need.  Medicaid waiver programs that now pay for community based housing alternatives (Assisted Living and support services) have dented demand along with a shift in post-acute referral to outpatient and home health for non-complicated, orthopedic rehabilitation post surgery.

For the SNF industry, Medicaid has become an addiction no different from nicotine.  Facilities simply cannot survive without it yet it is ruining their health (operationally).  The alternatives to Medicaid are to close shop.  The facilities most reliant, cannot break the cycle as the steps necessary to rebase and retool an SNF revenue and quality model are expensive and long.  Genesis will not get there.  HCR ManorCare couldn’t and didn’t.  The damage of too high of fixed costs and too much reliance on government reimbursement, particularly Medicaid and then an increasing Medicare rate to offset the loss, was a Fools Paradox after all.

Ending this cyclical nightmare is going to require forces and changes to the current paradigm that are yet, on the drawing board.

  • Wholesale changes to the Medicaid funding process are required.  Either more money must flow into the system from the Federal side or the State side (less likely) or the product cost must reduce (see next point).
  • The biggest driver of product cost for an SNF is regulation.  Without wholesale regulatory reform, it is unlikely the system (Medicaid) can find enough funding to adequately compensate an SNF for the cost of care.  The net will be poorer care (calling for thus, more regulation) or more closures leaving service gaps for the most vulnerable older adults.
  • Increasing advances in different product/service options and designs that are cheaper alternatives to institutional care can and will, continue.  Again, speeding the implementation of alternatives requires incentive and regulatory reform but there is no question, certain home and community based options are cheaper than SNF options.
  • Closure of poor performing facilities and constriction on supply is needed.  The industry must shrink and government needs to take an active role to reduce the overall supply and particularly, the supply tied to poor performing facilities.  Fewer beds equal higher occupancy, more efficiencies and enhance funding options (easier to derive funding models tied to actual, organic demand vs. tied to bed capacity and “forecasts” based on flawed assumptions of days of care).

Until these steps are taken, the conundrum will remain entrenched and most facilities, will continue to wrestle with Medicaid addiction problems.  Cold turkey is not an option for nearly all and when no hope remains, facility demise will continue to be the final resort.  Watchers of my home state of Wisconsin will see the most tragic examples as the state has a thriving economy, low unemployment and the worst Medicaid system in the nation.  With paltry additions of funding like 2%, when costs are climbing by double, more closures are certain.

March 30, 2018 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | Leave a comment

Upcoming Webinar: Reduce Citation Risk

SNFs are just a little past one year since the new Conditions of Participation were implemented along with a new survey process.  Today, we are in the first-full quarter of Phase 2 implementation and facilities are just now getting surveyed on these requirements. As a result, we have some data on how the new survey process is going, what facilities are experiencing in terms of citations, how survey teams are looking at Phase 2 requirements, etc.

On Wednesday, March 7th I will be joined by Diane R. Hislop, RN, H2 Healthcare’s compliance expert and Senior Partner, presenting a webinar on the Phase 2 aspects of the SNF Conditions of Participation, the new survey process and how facilities can reduce citation risk.  The webinar will last an hour and there are some great handouts and tools that Diane has agreed to share with all participants.  I hope you can join me and Diane for what will be, an exceptionally informative update on SNF surveys and compliance trends.

The registration link is here:

http://hcmarketplace.com/reduce-citation-risk

February 14, 2018 Posted by | Uncategorized | , , , , , , , | Leave a comment

SNF Outlook: 2018/2019

As 2017 closed, a number of projects kept me busy right up to the Christmas holiday.  Among these projects was a focus on the SNF industry current and its fortunes going forward, principally driven by clients in the investment industry.  With REIT troubles, portfolio defaults on the part of HCR and Consulate, Sabra divesting Genesis facilities and Genesis completely exiting Iowa, Missouri, Nebraska and Kansas plus nervousness over rising debt levels and increasing operating expenses (before interest/debt and rent) at Ensign, there is growing concern about “blood in the water”….and when (do) the sharks arrive, particularly for REITs which hold a large number of the physical SNF assets. Back in May of 2017 I wrote a post on the Kindred, HCR, REITs and where the SNF industry was headed.  Readers can refresh here: https://wp.me/ptUlY-m7 . For this post, its time to re-examine the industry economically and structurally and the policy and industry dynamics at-play that will affect the fortunes of the SNFs and the firms that invest in them or the industry.

First, its important to understand the general health policy and reimbursement dynamics at-play in the SNF industry.

  • Phase II Transition of  New SNF Conditions of Participation: Starting in December of 2017, the Phase II survey requirements began corollary to the new SNF Conditions of Participation.  Given a fairly aggressive industry lobbying push to CMS and the Trump Administration with respect to “regulatory overreach and burden”, CMS eased compliance requirements but did not abate any survey or compliance requirements related to Phase II.  In easing compliance requirements, CMS agreed to not impose remedies for Phase II non-compliance and not to impact Star Ratings under the Inspections component for one year.  Given how many SNFs are struggling already with compliance issues and the cost of implementation and compliance, a one-year hiatus for remedies isn’t much of a reprieve.
  • Value-Based Purchasing: Beginning in October of 2018 (FY 2019), SNFs with poor performance (below the target) on the 30 day readmission elements measured under VBR will see their Medicare reimbursement reduced by 2%.  Conversely, high-performing facilities will see a modest incentive, up to 2%, added to their reimbursement.
  • Medicare: In addition to a reimbursement outlook that is flat, a new looming specter has appeared known as RCS-1.  RCS-1 is the proposed new resident classification system for reimbursement for SNFs.  If CMS pushes forward on the time table noted in the proposed rule, the first phase of changes could begin as early as October of 2018 (FY 2019).  For SNFs that rely heavily on the rehabilitation RUGs in the present PPS system, the transition could be expensive and painful as therapy in the new system is UNDER rewarded in terms of “more equaling more payment” and a premium is placed on the overall case-mix including nursing, of the SNF’s Medicare population.  Further, lengths of stays are targeted for shortening as the reimbursement model under RCS-1 reduces payment by 1% per day as the resident’s stay progresses beyond the 15th day.  While the proposed model is “expenditure neutral” per CMS, there will be clear winners and losers.  Winners are facilities that have a balanced Medicare “book” or case-mix (nursing and therapy).  Losers are the facilities that have parlayed the “more minute, longer length of stay system”, focused on the highest therapy paying RUG categories.  These categories evaporate and the payment mechanics with them.
  • Medicaid: This payment source continues to be a revenue center nightmare for most SNFs in most states.  Medicaid underpays as a general rule, an SNF, compared to its daily cost of care for an average resident. As a result, the net loss an SNF will achieve for each Medicaid resident day can be minimal to jaw dropping (depending on the State).  For example, in Wisconsin, the average loss per Medicaid day exceeds $55.00.  This means that for every day of care reimbursed by Medicaid, an SNF must make-up via other payers, the $55.00 loss that comes from Medicaid.  An average SNF has fifty percent of its resident days paid for by Medicaid.  In a 100 bed facility in Wisconsin (assuming 100% occupancy), the facility loses daily, $2,750.  For a month, the loss total expands to $82,500 and for a year, just below one million dollars ($990K). Neighboring states such as Iowa (loss of $12 per day) and Illinois (loss of $25 per day) have better reimbursement ratios per daily cost but present other challenges. For example, Illinois has such overall budgetary problems that annually,  facilities must accept IOUs in lieu of payment as the State runs short of funds.  Kansas and Missouri had rate cuts this past year.  Only two states in the nation in 2016 has surplus rates under Medicaid – North Dakota and Virginia (Virginia is basically break-even).

Adding to this picture are the market and economic forces that provide additional headwinds for many (SNFs).

  • Medicare Advantage: 2018 will mark the year where 50% of all Medicare days for SNFs are paid by non-fee for service sources/plans; the dominant being Medicare Advantage.  In some metro regions, Medicare Advantage days already eclipse the 50% mark (Chicago for example).  Because there remains a surplus of SNFs beds in most if not nearly all markets, the Medicare Advantage plans have been able to set price points/ reimbursement rates below the Fee for Service rate; in most case, minus 10% to 15% lower.  Similarly, these plans focus on utilization and length of stay so rates are not only lower but stays, universally shorter.
  • Bundled Payments and ACOs: While CMS axed the core of the evolving mandatory bundled payments (hip, knee and cardiac), various  voluntary programs/projects are active, fertile and expanding in many markets.  The same is true, though less so, with ACOs.  As with Medicare Advantage but on a more focused basis, these initiatives seek to shorten length of stays, pay less for inpatient care, and focus on quality providers versus generic market locations.  In other words, the incentives for upstream providers (hospitals) under bundled payments  and ACOs is to cherry-pick the post-acute world for high quality, highly rated providers and to work to make the overall post-acute utilization as efficient and non-inpatient related as possible.
  • Care and Point of Service Advances: As technology and innovation in health care and direct surgical and medical care expand, the need for certain types of care services shifts.  Inpatient, post-acute care is seeing its share of “location of care” impact.  Patients once commonly referred to Inpatient Rehabilitation Facilities now hit the SNF.  Patients that may have gone to the SNF post a knee replacement or even a hip replacement, now go home with home health.  With the very real possibility of an equalized post-acute payment forthcoming, the post-acute transformation from a focus on “setting of care determinants” will all but erode.  What this means is that occupancy dynamics will continue to change and building environments that can’t be shifted to a new occupancy demand and patient type, will be obsolete.

Given the above forces, policy dynamics, etc., the overall outlook skews a bit negative for the SNF sector in general.  And while I may be a bit “bearish”, there are some unique opportunities present for properly positioned, properly capitalized providers.  Unfortunately for most investors, these providers and provider organizations are generally private, regional, perhaps non-profit and in nearly all (if not all) cases, not part of a REIT.  Some general facts that bear understanding and reinforcing.

  • By nearly all quantitative measures and expert reviews, the industry is over-bedded (too much capacity) by minimally 25% up to 33%.  This is not to say that any one facility in any one location typifies the stigma but as a whole, a solid 25% of the bed capacity could evaporate and patients would still have ample beds to access.  Remember, the average industry occupancy has shrunk to 80% of beds available.
  • Average revenue due to reimbursement changes and the impact of Medicare Advantage and “stuck to declining” Medicaid rates, has shrunk on a per day basis and a Year over Year basis; down from $259 per day in January 2015 to $244 per day in July 2016 (negative 2%).

  • The average age of physical plant across the sector is greater than 25 years (depreciated life).  The average gross age since put into use is older than 30 years.  This means that the typical SNF is larger in scope, very institutional, and expensive to retrofit or modernize.  In many cases, modernization to private rooms, smaller footprints, more common space, etc. comes at a cost greater than any potential Return on Investment scenario.  The winning facility profile today is under 100 beds, all private rooms, moderately to highly amenitized and flexible in design scope and use (smaller allocations of corridor or single use spaces).
  • Quality ratings and performance matters today.  SNFs that rate 3 stars or lower on the Medicare Star system will have trouble garnering referrals, especially for patients with quality payment sources.  It is not easy to raise star levels if the drag is caused by poor survey performance.  In a recent review I did for a project, analyzing the Consulate holdings of a REIT (SNF assets leased by the REIT to Consulate for management and operations), the average Star rating of the SNFs was below 3 stars and the 80th percentile, just above 2 stars).

The general conclusion?  Watch for another rocky year for the SNF sector and particularly, the large public chains and the REITs that hold their assets.  The sector has significant pressures across the board and those pressures are not decreasing or abating.  Still, there will be winners and I look for strong regional players, private localized operators and certain non-profits (health system affiliated and not) to continue to do well and see their fortunes rise.  A change in Medicare payment to RCS-1 will benefit this group but at the expense of the other SNFs in the industry that have not focused on quality, have a disproportionately high Medicaid census and have used Medicare fee for service/therapy/RUG dynamics to create a margin.

January 18, 2018 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

Happy New Year!

Welcoming in 2018 with a bunch of new content and enough cold weather and limited travel over the next month to get some new posts up.  I apologize to the loyal readers and subscribers that have patiently waited for new content.  A horrendously busy (non-typical) end of the year limited my writing/composing time.  Thanks for waiting and stay-tuned; plenty of new stuff forthcoming.  Happy New Year!

January 15, 2018 Posted by | Uncategorized | , | Leave a comment

Presentation Materials from LeadingAge New Orleans

For those of you that could not attend, I have attached the presentation and handouts/tools from our session on Care Coordination.  In addition to the Power Point (last attachment), there are a number of documents including (but not limited to), clinical pathways, careplans, patient education materials, etc.  Anyone with questions on any of these materials, please contact me at hislop3@msn.com or via comment to this post.

Week Care Coordination Rounds Weekly Progress Note

Weekly Cardiac Assessment (2)

Living with Chronic lung disease

Pulmonary pathway

Knee Arthroplasty pathway

Hip Arthroplasty pathway

Energy Conservation

Decision for Ortho Surgery

Care Coordination Journey

Clinical Pathyways

Cardiac pathway

Care Coordination Updated

 

November 6, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , | Leave a comment

Leading Age Annual Meeting

For those readers that have been dropping me notes – YES, I will be in New Orleans next week at the Leading Age conference. I will be there Monday and Tuesday, presenting Tuesday morning with a team. Our session is from 10:00 to 11:30: Care Coordination Model for Improved Outcomes and Satisfaction. Diane Hislop RN, H2’s Senior Partner and clinical compliance expert is part of the team of presenters. Those in attendance will receive a great bonus! We are providing zip drives to the first 300, loaded with forms, clinical pathways (respiratory, ortho, and more), care coordination materials, etc. from the presentation.

Catch me and Diane at the session or drop me a note on this site or via my mobile mail at hislop3@msn.com and we will try to connect.

October 26, 2017 Posted by | Uncategorized | , , , | Leave a comment

New Compliance/Survey Resource for SNFs

It is rare that I push or endorse any product on this site.  This is an exception worth making.

http://hcmarketplace.com/survey-success-for-long-term-care

The book is authored by my wife who also heads the Clinical Compliance practice within H2 Healthcare, LLC – the firm that I head.  She is our Senior Partner as well as the firm’s Chief Operating Officer.  Honestly, no one knows more about compliance from an operations perspective, in the post-acute industry, particularly SNFs, Hospice, Assisted Living, etc. than she does.

What makes this book a “must have” are the resources and tools contained, in one place.  She has shared a wealth of resources accumulated over her decades of practice, updated and put to use daily with clients, in her work.  For SNFs today, survey and compliance are linked and as so many of you have heard (or read) from me, the single most important aspect in obtaining quality-mix, keeping premium payments low on insurance packages, attaining favorable borrowing terms and eliminating unwarranted fines and forfeitures while having in-place, a de facto risk management and fraud prevention program is best-practice, clinical compliance.  This book will help a facility get there and stay survey ready; and clinically compliant.

This is a unique and worthy work as providers can gain first-hand insights on compliance and survey readiness from an expert who has led more deficiency free surveys, overturned more fines and forfeitures at the appeal and IDR level, and saved more clients and facilities untold millions of dollars in fines and forfeitures than perhaps, any other consultant and executive in the country.  I know, the word “biased” will come to mind but in this case, the work product will speak for itself.

September 22, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | Leave a comment

Medicaid Reform: Hope for Taming the Gorilla?

A few weeks back, I wrote a piece regarding Medicaid and its ties to the fortunes (lack thereof ) of some the largest SNF provider groups. Today a high percentage of resident census connected to Medicaid as a payer source is the largest contributor to the flagging financial condition of Genesis, HCR/ManorCare, Signature, and others.  With large losses stemming from inadequate Medicaid payments and shrinking sources of offset via Medicare (for a number of reasons), these organizations are perilously close to bankruptcy (or are fundamentally there as is the case with HCR/ManorCare).  For reference, see the previous post at  http://wp.me/ptUlY-mC

As I talk with investors across the nation (and internationally in some cases) interested in the fortunes of the REITs that hold a ton of the Genesis, HCR/ManorCare, et.al., assets (buildings) and or the fortunes of the companies themselves (Genesis is publicly traded with a stock value current, hovering just above $1 per share), I field the same question(s) repeatedly.  How did we get here and what needs to change for these companies to survive, or can they?  Quickly, allow me to recap where the SNF industry and particularly the groups aforementioned and others like them, is at.

  • First and most crippling, their dominant payer source is Medicaid. In the case of Genesis and HCR/ManorCare, above 66% on average in each SNF.
  • Medicare Advantage is a growing piece of the Medicare payer equation. In some markets, Medicare Advantage plans account for more than 50% of the Medicare patient days in a SNF referral stream.  These payers (the Advantage plans) are paying at Medicare MINUS levels.  Medicare minus 10% is phenomenal, if attainable. In most markets the discount is greater.
  • Most markets have a surplus of available SNF beds (nationally too).  Competition among providers is fierce for quality mix (better payers).  Because of this, the Advantage plans do not (yet) need to negotiate favorable terms as someone, somewhere will accept the discount; preferable to the vacant bed.
  • The policy landscape is adjusting to a new reality in which Stars matter.  Higher rated (Five Star) providers are now favored by payers, providers and consumers alike.  The steerage has started and it won’t subside.   Hospitals to physicians to consumer groups and payers preference is toward providers rated 4 Stars or higher.  While this pressure is yet overt, its subtle and growing and I hear it constantly as hospitals for example, won’t abide readmission risk and if they are in bundled or other at-risk payment projects (physicians too), they seek better partners (quality ratings) to handle their referrals.
  • There is a distinct preference shift among physicians, consumers and payers (bundled for example as well Medicare Advantage) to minimize inpatient stays both by length or by necessity.  Certain orthopedic profiles that once were a SNF staple (joint replacements) good for a 20 plus day Part A stay at high therapy RUGs either don’t last 20 days or don’t get referred at all.  I am seeing a wholesale shift of these patients to home health and outpatient primarily, followed by short (demanded) stays, 40 to 50% fewer in days, on an inpatient basis.  This volume change has demonstrably hurt certain SNF provides formerly reliant on it to offset Medicaid losses.
  • The physical plant assets are old, oversized, and dated.  The new, successful SNF model is smaller buildings, all private rooms, nicely appointed.  Genesis, et.al., represent some of the largest and oldest plant assets in the industry.  They are inefficient, institutional, and in many cases, burdened by high rent payments and comparably, high levels of deferred upkeep and maintenance (particularly interiors and movable equipment). Wholesale renovation is impractical as the investment is greater than the return on assets attainable now and across the near-horizon.
  • The regulations, especially the newly updated Federal Conditions of Participation for SNFs, phasing in as I write, are crippling to these providers.  These new regulations are coming with increasing cost while reimbursement options are flat to decreasing (Missouri and Kansas just had Medicaid rate cuts).  The Medicare increase for FY 2018 is 1%.  These new regulations require in some cases, wholesale changes to how SNFs operate when it comes to analyzing staffing needs, resident preferences, food and cultural issues, etc., all concurrent to REDUCTIONS in Medicaid rates.

So, to the point of this piece and the question that bears: What needs to change with respect to Medicaid to abate the problems present?  Secondarily, is there a survival/revival scenario for Genesis, Signature, HCR, et.al.?  I’ll answer the second question first as the first, is harder to sort through.

  • The business model of Genesis, Signature, etc. today is misaligned to the industry revenue/payer and market incentives.  There simply is no quick fix to repurpose the assets and to change the quality ratings and payer-mix, to make many of the facilities viable.
  • Their fixed costs are too high in terms of rent payments.  The REITs have a valuation problem as their books hold an asset today at a value that is by all definitions, impaired.  The valuation is based on cash flow which simply, in terms of rent payments, is no longer attainable.  Think about it: Rent coverage levels below 1 aren’t sufficient today to keep payments current.   A few articles back on this site, I wrote a piece regarding “Stranded Assets”.  This covers these concepts in-depth: http://wp.me/ptUlY-ms
  • Supply exceeds demand in many markets in terms of bed capacity.  Current SNF occupancy runs in the 85 to 88% range in most markets.  This today, is net of beds removed from service in many states to avoid paying (additional) bed tax or getting hit with Medicaid rate reductions and a loss of bed-hold payments for failure to meet occupancy levels (typically 90 plus percent).

The answer: Survival as is not likely and the industry needs to re-base again in terms of valuations, operators and capacity.  The underlying forces that took us to this current paradigm will not shift soon enough or demonstrably favorable (revenue/income), to alter the course for these providers.  I offer that this period is analogous in the incentive changes to the arrival of PPS for the industry in the early 90s.  Rebasing occurred as cost-rate payments disappeared and the rewards tied to “spending” more changed.  During this time, seven of the top 10 SNF organizations went bankrupt, some never to return to publicly traded status.

Turning to the 800 pound gorilla or Medicaid.  Medicaid reform is a significant challenge and without something changing from its present course for SNFs, the fortune for the SNF industry and this payer source is below bleak or grim.  For Medicaid as a payer, SNF care is a small portion of the overall outlay and actually shrinking as other programmatic expansions have consumed growing amounts of resources (Medicaid expansion).  The program drivers are primary physician and hospital care. The primary users of Medicaid today are working poor and their ranks are growing – rural and urban.   As applicable to seniors, Medicaid-waiver benefits have expanded at a far greater rate than SNF care utilization (which has continued to decrease).  Waiver programs, popular for keeping seniors out of institutional settings, have expanded as the needs of an aging society have expanded.

Medicaid is funded principally, by States attaining various levels of revenue, allocating the same toward a Federal funding approach that matches the revenue, and then forwards the Federal share to the state.  As the Feds choose to incent certain Medicaid programmatic initiatives, the Feds may sweeten the pot with enhanced matching dollars or a full (initial ) funding approach such as under Medicaid Expansion.  The flaw in any of these approaches is the temporary nature of the Federal cash subsidy and the limitations imposed to the State that prohibit the State from cutting the outlays conditioned on the Federal incentive.  In other words, the Vegas slot machine effect (just enough payoff to keep you seated and pumping-in dollars anticipating a bigger payoff).  States get hooked and the resort they have to curtailing or balancing their piece of the Medicaid pie (once the Federal piece shrinks) are raising revenue (typically very tough through income taxes hence the bed tax games, tobacco tax games, and the inter-fund related robbery that goes on state to state among schools, highways, gasoline taxes, casino funds, etc.) or cutting provider payments.  It is the latter that has hurt the SNF industry by reference, in this article.

Medicaid in its current form is a broken system and one that was bastardized to break with the ACA.  Expansion hastened its demise, though it was on life support when the ACA was passed and implemented.  It has become a catch-all basket of anything entitlement, non-Medicare and as a result, it is a mess.  The sad reality is every policy analyst with any cred knows it as does all of the House, the Senate, and everyone at DHHS.  The difficulty is how does something like this get fixed.  The prevailing answer: Punt it back to the states and give them flexibility to “innovate” otherwise known as, the Block Grant approach.  Instead, as I conclude this piece with others sure to follow, consider the following.

  • For an SNF, Medicaid is a rate drag – a loser producing daily revenue shortfalls to cost.  It’s not that the rate may be inadequate its that the costs are too high.  The point here is that without wholesale federal regulatory relief from rules and requirements that haven’t shown any evidence of producing better care outcomes, their is no opportunity to reform Medicaid as a payer adequate enough in rate, for a SNF to survive with a majority Medicaid census.  Simple economics apply: Either rate rises to offset cost increases or costs decrease to allow rate to be adequate to produce and sustain, product quality.  The gap between regulatory increases and overreach and rate inadequacy (Medicaid and to a lesser extent, Medicare) is widening.
  • Block grants won’t work as the whole pie is the reference point rather than the programmatic pieces.  Trust me, the parts of Medicaid have considerably different contextual differences and economic and social drivers.  Funding must be de-aggregated and reimagined at the different levels, separately.  The needs of children, families, etc. are so markedly different from the SNF and waiver needs of the elderly as are the economic and social drivers.  Market strategies can and likely will work with the younger groups whereas the elderly, need a social construct (ala Pace approach) model to achieve investment and outcome balance.
  • The benefits need review and re-think.  This is true however, of all federal entitlements.  Here, states given latitude may have some significant advantage in revamping Medicaid.  The Feds, in a Block Grant approach must be the “bank” or the “capital” not also the architect, general contractor, and job-site superintendent.
  • The Medicaid incentives need reversing and a growing emphasis on private initiatives and insurance needs to occur.  The Feds can play an active role by creating avenues for private investment for retirement, accumulation of capital, use of estate and wealth transfer resources, etc. such that over time, the obligations of government to fund large pieces of the social fabric and needs of old age care, shift more in-balance, to each citizen.  The return on investment of tax advantaged, flexible investing for private insurance, private wealth accumulation used for care and service needs after 65, etc. is far greater (positive) than the loss of or revenue offset of the tax advantage.  We know this to be true via HSAs and 401(k)s and IRAs.
  • Finally, reforming health care will reform (significant step forward) Medicaid and the drivers of cost.  Fixing Medicaid is not a stand-alone issue, so to speak.  The challenge in the U.S. today is to REFORM health care, not reform how it is paid for or who has coverage and how does one access the same.  Spending on health care in the U.S. is disproportionately higher than all other world nations and our return in terms of life expectancy and QUALYs, substandard.  We are investing a $1 and losing 20 or so cents on our investment.  We need to focus on “bending the cost-curve” and not the insurance and welfare/entitlement pieces.  Regulatory reform and streamlining payment and program participation would be a great, simple first-step.

 

 

September 14, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment