Friday Feature: SNFs Still Make Sense
For some recent years, enhanced by the pandemic, the role of SNFs in the post-acute/senior living industry has tarnished. Residents and families often view the SNF as a “negative place” to reside, even if for short-term recuperation. Clinical staff take a dim view of the care complexity such that the SNF is a downgraded clinical setting, less than a hospital or outpatient setting. Providers, struggling with reimbursement inadequacy and advancing regulation, have reduced beds or closed locations. Some organizations like CCRCs, have minimized bed capacity or completely eliminated the SNF and moved to advanced Assisted Living care as the highest available care option for residents. Yet, in spite of these trends and the tarnish, SNFs have a place in the continuum and in some regards, and advancing place.
What challenges the SNF industry and thus, its reputation, are more external forces than flaws in the core purpose of an SNF. External forces such as onerous and increasing regulation, below cost reimbursement, and labor shortages are the most common forces providers deal with. Gone are the days where nursing homes were locations of long-term stays, typified by years of residency. Where and when this still occurs is for residents with early-age disabilities, or for residents that have minimal financial means such that Medicaid nursing home benefits are the primary level of support for care. With Medicaid supports via waiver programs expanding, long-term skilled nursing care includes primarily the most complicated residents, those with multiple conditions requiring skilled nursing interventions weekly or even, daily. Examples include ventilator care, dialysis, tube feedings, ostomy care, etc. While these services can be provided in the home or a non-SNF setting, location challenges often make an inpatient environment (SNF), the best place for consistent care when required.
The demographics forward, favor a post-acute, SNF setting. Despite the push for post-acute care to migrate to home settings with home health the reality remains, this is not the answer for every patient. The older the patient, the number of comorbidities involved, the nature of the comorbidities, the presence of an aging spouse with health challenges, etc. all are a predicate to whether or not, home care via home health is viable. Today, even access to home health can be challenging if not, impossible. The staffing challenges all health care providers face are particularly daunting for home health agencies where, acceptance of cases, especially complex cases, comes down to having available staff to meet patient needs. As home health care by its nature is inefficient, facility-based care can be more feasible when complexity of the case is at issue and the availability of staff is challenged. In other words, staffing one location that can accommodate say 60 residents, is easier than staffing a caseload of 60 separated by travel with distances expressed in miles.
The SNF industry and the facilities within tend to be some of the oldest classes of assets in the senior living industry. The cost of new construction is high and without access to a very high-quality payer mix, the returns are challenging. For providers than can maintain solid occupancy and high-quality payer mixes (Medicare, insurance, private pay), the returns are solid and the access to capital is there. Medicare Advantage plans are starting to create solid value-based care propositions for good providers with exceptional quality records AND great care coordination partners. For example, an SNF that has a relationship with a Home Health Agency, either owned or in partnership, has the ability to package price disease management approaches by common clinical conditions that include SNF care and HHA care, all bundled, and care coordinated. If the pricing is mapped with overall savings, reductions in re-hospitalizations, improved patient outcomes and satisfaction, the opportunities going forward are significant. I have a number of pathways/algorithms that fit this example. A few can be downloaded here.
What headwinds lie ahead fall mostly around staffing, regulation, and reimbursement. Oddly enough, the failures that will inevitably occur necessitating closures and bed reductions, will make good SNFs stronger going forward. The demand by demographics and patient needs is only increasing. There will be a significant role for SNFs to play in meeting the market needs. The questions that beg are around reimbursement keeping up with increasing costs and how disconnected will new staffing regulations be to the reality of the labor markets. As I have said in other posts, mandates make no sense when in all reality, the mandate cannot be met now, or anytime in the near future.
Bottom-line: Banks are still willing to lend to good providers. REIT capital is available as is private equity for facility improvements and modifications. Demand is decent and recovering. There is a lot of pent-up demand as well, post-COVID. Valuations have remained stable for SNFs as well. Plenty of partners exist, more so than other senior living segments (hospitals, Med Advantage plans, health systems, Home Health Agencies, etc.).
Litigation risk is still an issue but a recent court case in Washington involving Life Care Centers of America concerning COVID and the liability for infections obtained in an SNF was found favorably for Life Care Centers. One case, however, is not a trend but it is a good sign that perhaps, the SNF industry will not be overwhelmed by COVID litigation pertaining to outbreaks and occurrences in facilities. A synopsis of the case is available here: https://www.mcknights.com/news/life-care-centers-vindicated-in-early-covid-wrongful-death-case/?utm_source=newsletter&utm_medium=email&utm_campaign=NWLTR_MLT_DAILYUPDATE_052323&hmEmail=IjP1GPaY%2BJ2uvsLxTJ79bVeRWY7ycbnr&sha256email=aa4cb7c695037c31a216b9562788596b6fcd012145d566f31440b6fcd139c8a9&elqTrackId=2c80aade4c3647c8ab5b85f72fb85138&elq=8a824ff9b15249a9bf296d2d2c1be9e8&elqaid=4134&elqat=1&elqCampaignId=2746
Well-run, well-capitalized SNFs with more modern physical plants have a solid opportunity in the evolving post-acute industry. Challenges exist but opportunities do as well and, in my opinion, the opportunities outweigh the challenges for operators that understand value-based care models, are willing to develop partnerships, can maintain staff, and have great quality and service records.
Follow-Up: Real Impacts of Poor Quality and Lax Compliance
About ten days ago, I wrote a piece regarding the negative impacts providers can expect (and receive) when quality of care and service combined with vigilance on compliance are not primary in and across their organizations. All too often, I hear companies and organizations that I work with, say they are committed to quality but by deeds, the evidence is lacking. In fact, I have never heard a failed organization say that they weren’t (always) committed to quality patient care, etc. I have also never heard a failing organization or poorly rated one say that “while we will talk about quality, that’s all we do – talk”. No organization ever says that quality is “lip service more than substance” just like no restaurant ever says their food is “marginal or poor”. Yet with health care, the peril of poor performance is all over the news and the news is quite sobering.
Below are two news stories that colleagues and readers have sent. I think each in its own right, helps frame this issue in “real terms”.
Here is the first regarding the care fall-out associated with the story/saga of HCP and HCR ManorCare. I have written on this subject extensively, with many articles available on this site.
The second story concerns SNF Value-Based Purchasing and how the industry performed in the first phase. Again, I have written articles on VBP which can be found on this site and just conducted a webinar for HCPro on this subject. The article is fascinating in two regards. First, the limited number of facilities/providers that performed above the benchmark – only 27%. Fully 73% of the SNFs performed poor enough in terms of avoidable rehospitalization rates that they are receiving reduced Medicare reimbursement rates as a penalty. For an industry hardly flush with cash, it is incongruous how any organization can perform below standard and take payment cuts. Quality, as I have written and lectured on consistently, rewards and punishes depending on how it is provided (good vs. bad). The article is below.
I hope readers enjoy both articles as they illustrate far better, the implications of poor quality, than I can via my words.
Home Health Final Rule: Rate Increases plus PDGM
While I was in Philadelphia speaking at LeadingAge’s annual conference, CMS released its 2019 Home Health Final Rule. As I wrote in an earlier post regarding the proposed rule, the topic of interest was/is a new payment model – PDGM. As has been the case across the post-acute industry, CMS is advancing case-mix models crafted around a simplified patient assessment, less therapy oriented more nursing/medically balanced. The industry lobbied for modification or delay in PDGM, primarily due to some underlying behavioral assumptions CMS embedded in the proposal (more on this in later paragraphs).
The most relevant, immediate impact of the final rule is rate increases (finally) for the industry – 2.2% or $420 million. The industry has experienced rate cuts and rebasing consistently since 2010 as a response to fast growth and high profit margins exhibited by companies like Amedysis (the center of a Congressional hearing in 2011).
PDGM is slated to take effect “on or after January 1, 2020”. The ambiguity in this language is worth noting as there are some that believe modification, even delay is possible. Compared to the proposed rule, the final rule includes 216 more Home Health Resource Groups due to bifurcating Medication Management Teaching and Assessment from previous group alignments. The following key changes are a result of PDGM.
- As with PDPM on the SNF side, PDGM removes the therapy weight/influence separately from the assessment and payment element weights for HHAs. The clinical indications or nursing considerations are given more weight along with patient comorbidities.
- Coding becomes a key factor in payment mechanics, particularly diagnoses and co-morbidity.
- Functional status is given a higher weight, as is the case today with all post-acute payment model reforms.
- Episode lengths are halved – down from 60 days (current) to 30 days.
- PDGM is budget neutral meaning that when fully implemented,, the cost to the Federal government for Medicare HHA payments in the aggregate is no greater than current (inflation adjusted for time). To get to budget neutrality, certain behavioral assumptions about provide reactions to the changes are used. As one would suspect, this is a subject of concern and debate by the HHA industry.
The behavioral assumption issue referenced in #5 above is an imputed reality in all payment model changes. In fact, it is an economic model necessity when attempting to address “how” certain changes in reward (payment) will move activity or behavior toward those places where reward or payment is maximized. It is a key economic behavioral axiom: What get’s rewarded, get’s done.
In effect, CMS is saying that budget neutrality is achieved for a 30 day episode when payments for the episode equal $1,753.68. Getting to this number, CMS assumed that agencies would react or respond quickly to payment changes (areas where increases are found) in co-morbidity coding, clinical group assignment and reduction in LUPA cases. However, if CMS models slower reactions or limited reactions by the industry (operating norms as current persist), the payment impact is an increase of 6.42% or $1,873.91. Because budget neutrality is mandated concurrent with PDGM, the concerns providers are raising relates to how payments will ultimately be determined and when if necessary, will adjustments be made IF the anticipated behavioral changes don’t manifest as factored. Simply stated, this collective concern(s) is the reason the industry continues to lobby for delay, more analysis and further definitional clarity with the PDGM funding and payment assumptions prior to implementation.
One final note with respect to PDGM dynamics. Readers of my articles and attendees at lectures, webinars, other presentations have heard me discuss overall post-acute payment simplification and the movement within Medicare reimbursement to site neutrality. PDGM is an interesting payment model from the standpoint that it parallels in many ways, the PDPM movement for SNFs. It is diagnosis based, more clinically/nursing driven than the previous system and more holistic in capturing additional patient characteristics (co-morbidities) than before in order to address payment relevance. With assessment simplification and a growing focus on patient functional status at various points across a post-acute global episode (from hospital discharge to care completion), an overall framework is becoming more visible. Expect continued work from CMS on payment simplification, more calls from MedPac for site neutral payments for post-acute care. The policy discussions are those that reinforce payment that follows the patient, based on patient clinical needs, unattached to any site dynamics or locations, save perhaps a coding modifier when inpatient care is warranted to account for the capital and equipment elements in the cost of care. When looking globally at the overall health care payment and policy trend that is occurring sector by sector, the future of payment simplification and movement to site neutrality is certain. One question remains: By when?
Post-Acute, Site Neutral Payment Upcoming?
In the 2019 OPPS (outpatient PPS) proposed rule, CMS included a site neutral payment provision. With the comment period closed, the lobbying (against) fierce, it will be interesting to see where CMS lands in terms of the final OPPS rule – maintain, change, or abate. The one thing that is for certain, regardless of the fate of this provision, site neutral proposals/provisions are advancing.
CMS has advanced a series of conceptually similar approaches to payment reform. Site neutral approaches are a twist on value-based care as they seek to reward the efficiency of care by de-emphasizing a setting value. This is loosely an approach to “payment follows the patient” rather than the payment is dictated by the locus of care. Assuming, which isn’t always in evidence, that for many if not most outpatient procedures, the care required is the same such that one setting vs. another isn’t impactful to the outcome, then a site neutral payment seems logical. Managed care companies have been using this approach overtly, attaching higher cost-share to certain sites or eliminating payment altogether for procedures done in higher cost settings. In the OPPS proposal, the savings is rather substantial – $760 million spread between provider payments and patient savings (deductibles). To most policy watchers, there is a watershed moment possible with this proposal and its fate. The fundamental question yet resolved is whether hospitals will continue to have a favorable payment nuance over physician practices and free-standing outpatient providers. Hospitals arguing that their administrative burden and infrastructure required overhead, combined with patient differences (sicker, older patients trend hospital vs. younger, less debilitated patients trending free-standing locations), necessitates a site different payment model (such as current).
In the post-acute space, payment site neutrality has been bandied about by MedPAC for some time. Up to now, the concept of payment site neutrality has languished due to disparate payment systems in provider niches’. SNFs and their RUGs markedly different from Home Health and its OASIS and no similarity with LTACHs in the least. Now, with post-acute payments narrowing conceptually on “patient-driven” models (PDPM and PDGM) that use diagnoses and case-mix as payment levers, its possible CMS is setting a framework to site neutral payments in post-acute settings.
In its March 2015 report to Congress, MedPAC called for CMS to create site neutrality for certain patient types between SNFs and IRFs (Inpatient Rehab Facilities). While both have separate PPS systems for payment, the IRF payment is typically more generous than the SNF payment, though care may look very similar in certain cases. For IRFs, payment is based on the need/extent of rehab services then modified by the presence or lack of co-morbidities. IRFs however, have payment enhancements/ additions for high-cost outliers and treating low-income patients; neither applies in the SNF setting.
The lines of care distinction between the two providers today, certainly between the post-acute focused SNFs and an IRF, can be difficult to discern. For example, both typically staff a full complement of therapists (PT, OT, Speech), care oversight by an RN 24 hours per day, physician engagement daily or up to three times per week, etc. Where IRFs used to distinguish themselves by providing three hours (or more) of therapy, SNFs today can and do, provide the same level. As a good percentage of seniors are unable to tolerate the IRF therapy service levels, SNFs offer enhanced flexibility in care delivery as their payment is not predicated (directly) on care intensity. What is known is that the payment amounts for comparable patient encounters are quite different. For example, a stroke patient treated in an IRF vs. an SNF runs $5,000 plus higher. An orthopedic case involving joint replacement differs by $4,000 or more. Per MedPAC the difference in outcomes is negligible, if at all. From the MedPac perspective, equalized payments for strokes, major joint replacements and hip/femur related surgical conditions (e.g., fracture) between IRFs and SNFs made sense, at least on a “beta” basis. With no rule making authority, MedPac’s recommendation stalled and today, may be somewhat sidelined by other value-based concepts such as bundled payments (CJR for example).
So the question that begs is whether site neutral payments are near or far on the horizon for post-acute providers. While this will sound like “bet-hedging”, I’ll claim the mid-term area, identifying sooner rather than later. Consider the following.
- Post-acute care is the fastest growing, reimbursed segment of health care by Medicare.
- The landscape is changing dramatically as Medicare Advantage plans have shifted historic utilization patterns (shorter stays, avoidance of inpatient stays for certain procedures, etc.).
- Medicare Advantage days as a percentage of total reimbursed days under Medicare are growing. One-third of all Medicare beneficiaries were enrolled in a Medicare Advantage plan in 2017. Executives at United Healthcare believe that Medicare Advantage penetration will eclipse 50% in the next 5 to 10 years. As more Boomers enter Medicare eligibility age, their familiarity with managed care and the companies thereto plus general favorability with the product makes them quick converts to Medicare Advantage.
- Managed care has to a certain extent, created site preference and site based value payment approaches already. There is market familiarity for steering beneficiaries to certain sites and/or away from higher cost locations. The market has come to accept a certain amount of inherent rationing and price-induced controls.
- At the floor of recent payment system changes forthcoming is an underlying common-thread: Diagnoses driven, case-mix coordinated payments. PDPM and PDGM are more alike in approach than different. IRFs already embrace a modified case-mix, diagnoses sensitive payment system. Can homogenization among these be all that far away?
- There are no supply shortage or access problems for patients. In fact, the SNF industry could and should shrink by about a third over the next five years, just to rationalize supply to demand and improve occupancy fortunes. There is no home health shortage, save that which is temporary due to staffing issues in certain regions (growth limited by available labor rather than bricks and mortar or outlets). Per MedPac, the average IRF occupancy rate pre-2017 was 65%. It has not grown since. In fact, the Medicare utilization of IRFs for certain conditions such as other neurologic and stroke (the highest utilization category) has declined. (Note: In 2004 CMS heightened enforcement of compliance thresholds for IRFs and as a result, utilization under Medicare has shrunk).
- Despite payment reductions, Home Health has grown steadily as has other non-Medicare outlets for post-acute care (e.g., Assisted Living and non-medical/non-Medicare home health services). Though the growth in non-Medicare post-acute services has caused some alarm due to lax regulations, CMS sees this trend favorably as it is non-reimbursed and generally, patient preferred.
- Demonstration projects that are value-based and evidence of payment following the patient or “episode based” rather than “site based” are showing favorable results. In general, utilization of higher cost sites is down, costs are down, and patient outcomes and satisfaction are as good if not better, than the current fee-for-service market. Granted, there are patient exceptions by diagnoses and co-morbidity but as a general rule, leaving certain patients as outliers, the results suggest a flatter, site neutral payment is feasible.
If there is somewhat of a “crystal ball” preview, it just may be in the fate of the OPPS site neutral proposal. I think the direction is unequivocal but timing is everything. My prediction: Site neutral payments certainly, between IRFs and SNFs are on the near horizon (within three years) and overall movement toward payments that follow the patient by case-mix category and diagnoses are within the next five to seven years.
Five Post Acute Axioms (Truisms)
I read a lot – part of the job. I hear lots of conversations and participate in many in-person and online. Last week, I spent a few evenings with my rehab partner. Between he and my wife, with clients across the country, it was fascinating how the conversation regarding fortune or famine (providers) boiled down to a few simple truths. Summarizing, those that do well have accepted and work doggedly at embracing and living out these axioms. Those that are struggling, simply refuse to grasp these plain truths. Regardless of the entity (SNF, HHA, etc.), these axioms apply (truthfully, for any provider including hospitals).
To preface, I’ve slimmed-down hours upon hours of recent conversations to these five “axioms”. One could argue more apply. Between my partners, my wife (a partner) and me, we have some context here as we work with multiple entities that rank in the top 1,000 post-acute providers in the nation. For example, we all share a working relationship with the 6th ranked SNF in the nation, out of 15,636 SNFs. Unfortunately, we also have client relationships with the lowest ranked providers including one that ranks 15,609. This dichotomy (cruel as it is) gives us a unique perspective regarding truisms (embrace them and succeed, ignore them and fail).
- Quality Matters: This isn’t about hype or verbiage; it’s about results. Organizations that are succeeding are doggedly, persistently and hyper-fixated on their care outcomes. Their culture is deep in quality and they benchmark themselves and what they do, how they perform, with an effort on getting better all the time. Their outcomes demonstrate their quality.
- Staffing Matters: Providers that perform invest in and have in number, great staff perform better. They put the right people closest to the patients. They have assessed their operations and know precisely, what levels of staff by credential and education, their operations require. They train, teach and invest in their “troops”. You won’t find a great SNF that doesn’t have RNs on every shift, every day. You won’t find a great provider, HHA or SNF, etc., that doesn’t have actual employees, not contractors, taking care of patients (primarily).
- Excellence in Management and Leadership is Imperative: The best have long-term, highly qualified management and leadership at every level in the organization. They retain great talent and grow it like a prized rose-bush (ever watch rose “aficionados” you’ll get the reference). These folks aren’t the highest paid or even with the most credentials; they are excellent directors of task and people. The most credentialed (education, certifications, etc.) don’t correlate to the best manager or leader. In a nutshell: Excellence here means bright, strategic, engaged, earnest, industry and trade experts, that are quality driven.
- The Devil is in the Details: The best providers are not just current with policy issues and reimbursement trends, they are ahead and know the implications and manage to these details. For example, they know length-of-stay matters and they are working to shorten each encounter to only the resources required (days, visits, etc.). Their quality measures are excellent because they review the dozens of measurable data points to look for trends and to track outcomes. They have protocols and disease pathways in-place. They adopted antibiotic stewardship practices before the buzzword existed. They already were on pain and the management thereof, without or minimizing opioids, before alarms sounded. They had steps in place to quality review care transitions and hospitalizations. QAPI was something new but not to them. Doing things right was and still is, the driver for these excellent organizations.
- The Organization is like a Car: This is meant to be a silly reference but also serious. Driving is all about what is going on ahead of you and being anticipatory and prepared. The rearview mirror is checked but only briefly. Failure to pay attention to the road ahead and anticipate hazards, keep safe distances, etc. is how one arrives at a destination, safely and efficiently. Think of it this way: Slow is smooth, smooth is fast (an old and time-honored, Special Forces reference). Great providers embrace this philosophy – do things slowly, smoothly to be able to respond quickly when necessary. What differentiates the very best providers from the very worst is their focus on FORWARD – being very anticipatory and developing core, innate competencies that help be “smooth and fast” as adaptation is required in health care.
Food for thought. If one chooses to use the above points on a comparative basis, my guess is you will find what I know. The best embrace these axioms. The worst don’t or don’t consistently. Everyone else in the middle has a choice to make – get better or get worse. The truth about “great’ in health care is easy to understand.
Home Health and Hospice: Strategic Movement in an Evolving Market
Last year 2017, was a bit of a “downer” in terms of mergers/acquisitions in the home health and hospice industry. Though 2017 was fluid for hospital and health system activity, the home health and hospice sectors lagged a bit. Some of the lag was due to capacity concerns in so much that health system mergers, if they involve home health as part of the “roll-up”, take a bit of sorting out time to adjust to market capacity changes (in markets impacted by the consolidations). The additional drag was attributable to CMS proposing to change the home health payment from a per visit function to a process driven by patient characteristics – after implementation, a net $950 million revenue cut to the industry. CMS has since scrapped this proposed payment revision however, the future foreshadows payment revisions nonetheless including changing to some format of a shorter episode window for payment (ala 30 days).
Hospice has always been a bit of niche in terms of the post-acute industry. Where consolidation and merger/acquisition activity occurs, it is most often fueled by a companion home health transaction. De Novo hospice “only” activity of any scale has been steady and unremarkable, save regional and local movement. From a reimbursement and policy implication standpoint, hospice has been far less volatile than home health. Minor changes in terms of scaling payment levels by length of stay have only marginally impacted the revenue profile of the industry. What continues to impact hospice patient flow is the medical/health care culture within the U.S. that continues to be in steep denial regarding the role of palliative medicine/care and end-of-life care, particularly for advanced age seniors. Sadly, too many seniors still pass daily in expensive, inpatient settings such as hospitals and nursing homes (hospitals more so), racking up bills for (basically) futile healthcare services. If and when this culture shifts, hospice will see expansion in the form of referrals and post-acute market share.
Despite somewhat (of) a tepid M&A climate in 2017, the tail-end of the year and early 2018 provided some fireworks. Early 2018 is off to the races with some fairly large-scale consolidations. In late 2017, LHC group and Almost Family announced their merger, recently completed. Preceding this transaction in August, Christus Health in Texas formed a joint venture with LHC, encompassing its home health and hospice business (LTAcH too). Tenet sold its home health business to Amedysis (though not a major transaction by any means). And, Humana stepped forward to acquire Kindred’s Home Health business.
In the first months of 2018, Jordan, a regional home health and hospice business in Texas, Oklahoma, Missouri and Arkansas, announced a merger with fellow regional providers Great Lakes and National Home Health Care. The combined company will span 15 states with over 200 locations. In other regions, The Ensign Group, primarily a nursing home and assisted living provider continues to expand into home health and hospice via acquisitions; primarily underperforming outlets that have market depth and need restructuring. Former home health giant Amedysis continues to redefine its role in the industry via additions of agencies/outlets in states like Kentucky. Amedysis, once the largest home health provider in the nation, fell prey to congressional inquiries and regulatory oversight regarding suspected over-payments and billing improprieties. Having worked through these issues and shrinking its agency/outlet platform to a leaner, more core and manageable level, Amedysis is now growing again, though less for “bigger” sake, more for strategy sake.
Given the preceding news, some trends are emerging for home health in particular and a bit (quite a bit) less so for hospice. Interestingly, one of the trends apparent for home health has been present for hospitals, health systems, and now starting, skilled nursing: there is too much capacity, somewhat misaligned with where the market needs exist. I believe this issue also exists for Seniors Housing (see related post at https://wp.me/ptUlY-nA ) but the drivers are different as limited regulation and payment dynamics are at play for Seniors Housing. While home health is no doubt, an industry with continued growth potential as more post-acute payment and policy drivers favor home care and outpatient over institutional options, capacity problems still exist. By capacity I mean too many providers wrongly positioned within certain markets and not enough providers properly positioned to deliver more integrated elements of acute and post-acute, transitional services in expanding markets (e.g., Washington D.C., Denver, Dallas, etc.).
Prior to their final consolidation with Humana, Kindred provided an investor presentation explaining their rationale for exiting the home health business (somewhat analogous to their exit rationale from skilled nursing). The salient pages are available at this link: Kindred Investor Pres 2 18 . Fundamentally, I think the underpinnings of the argument beginning with the public policy and reimbursement dynamics which are extrapolated against a “worse-case” backdrop (MedPac recommendations don’t equate to Congressional action directly nor do tax cuts equate directly to Medicare reimbursement cuts) get lost to the real reason Kindred exited: excess leverage. Kindred was overly leveraged and as we have seen with all too many like/analogous scenarios, excessive overhead and fixed costs in a tight and competitive market with sticky reimbursement dynamics and risk concentration on Medicare beget few strategic options other than shrink or exit.
With the backdrop set, the home health environment is at an evolutionary pass – the fork-in-the-road applies for many providers: bigger in scale or focused regionally with more network alignment required (aka strategic partnerships). I think the following is safe to conclude, at least for this first half of 2018.
- The M&A driver today is strategy and market, less financial. While financial concerns remain due to some funky (technical term) policy dynamics and reimbursement unknowns, the same are more tame than 12-18 months ago. To be certain, financial gain expectations are part of every transaction, just less impactful in terms of motivation.
- The dominant strategic driver is network alignment: being where the referrals are. The next driver is “positioning” as a player managing population health dynamics. Disease management focus is key here.
- Medicare Advantage penetration is re-balancing patient flow in many markets. As the penetration escalates above 50% (half or better of all Med A days coming from Med Advantage), the referral flows are shaping to more demand for in-home care (away from institutional settings), shorter lengths of stay across all post-acute segments, increasing complexity and acuity on transition, and pay-for-performance dynamics on outcomes (particularly, re-hospitalization).
- Market locations are key and very, very strategic. With home health, being able to channel productivity, especially in a low labor supply/high demand environment, is imperative. Being proximal to referrals, being tight with geographic boundaries, being able to lever staff resources, and being able to deploy technology to enhance efficiency is operationally, imperative.
- Partnerships are synergistic today and in-flux. It used to be that a key partner was an acute hospital. Today, the acute hospital remains important but not necessarily, primary. With physicians starting to embrace ACOs and Bundled Payment models, the referral relationship most preferred may be direct agency to doctor. In fact, the hospital partner may not be anywhere near as valuable as the surgical center partner, owned and controlled by physicians.
- Capacity and capability to bear risk from a population management perspective and to accept patients with higher acuity needs (in-home) and broader chronic conditions. Effectively, home health agencies are going to continue to feel pressure to take patients with multiple chronic needs and comorbidities and to coordinate these care needs across perhaps, two to three provider spectrums (outpatient, specialty physicians, hospice if required, etc.).
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.
- 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
- 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.
- 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.
- 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”.
Post-Acute Compliance 2015: OIG Targets
As is customary in late fall, the Office of the Inspector General (OIG) of the Department of Health and Human Services released its Fiscal Year work plan. As a reminder or preface, the work plan is the summary of investigations and focal areas the OIG plans to undertake in the upcoming fiscal year and beyond to ensure program efficiency and integrity and to identify and prevent fraud, waste and abuse (the latter is the most relevant activity). Each provider segment reimbursed by Medicare is covered, some more so than others depending on the prevailing nature of program expenditures. As of late (most recent years), the post-acute sector is targeted principally due to the outlay/expenditure growth (Medicare) for hospice, home health and skilled nursing care.
Below is the categorical highlights (not exhaustive) found within the 2015 Work Plan (the full plan can be found here ( https://oig.hhs.gov/reports-and-publications/archives/workplan/2015/FY15-Work-Plan.pdf ;
Skilled Nursing Facilities
- Medicare Part A Billing: Scrutiny on claim accuracy and appropriateness of billed charges, particularly focused on therapy utilization and RUGupcoding. Recent False Claims Act cases withExtendicare illustrate how the OIG views Medicare payments for inappropriate utilization and for care that is clearly inadequate. This is a major risk area for providers and no SNF should discount the exposure, particularly if any of the following elements within the organization’s operations are present.
- Therapy services provided by an outside contractor. The OIG has identified previously that there exists a correlation between certain therapy agency contractors and patters of upcoding.
- Disproportionately higher (as a percentage of census/payer mix), Medicare utilization. The common threshold level is 30% or lower of total census. Higher Medicare days as a percent of overall payer mix is a red flag for the OIG or an outlier.
- Low overall Part B therapy utilization.
- Skewed RUG distribution where the majority of days are falling the highest paying therapy RUGs (particularly ultra-high with moderate to minimal ADL scores – minimum/moderate assist levels)
- Longer length of stays at higher RUG levels – minimal or infrequent Change of Therapy without corresponding Change of Conditions or vice-versa.
- Medicare Part B Billing: The converse to the point previous is enhanced focus by the OIG on over-utilization or inappropriate utilization of Part B therapy services when Part A is exhausted or unavailable. The OIG has noticed a trend for providers wary of Part A scrutiny to shift utilization to Part B. Again, the focus is on inappropriate billing patterns and utilization trends above or beyond, the historical norm.
- State Agency Survey Reviews: The OIG plans to review how frequently and how well, state survey agencies reviewed and verified, facility plans of correction for completeness and compliance. The gist: enhanced/additional federal look behind visits and desk reviews.
- Hospitalizations: The OIG intends to review the hospitalization trends of SNF patients, identifying patterns of utilization for manageable or preventable care issues. A 2011 review found that 25% of Medicare SNF patients were hospitalized in a given year and the OIG is of the opinion that a percentage (likely sizable) is preventable and potentially, indicative of quality problems at the SNF level.
Hospice
- Hospice in Assisted Living: The OIG will monitor the continued growth trend of hospice care provided in Assisted Living facilities. Part of this initiative is couched in the requirement within the ACA for the Secretary (of HHS) to reform the hospice payment system. The OIG indicates that it will gather data on hospice utilization, diagnoses, lengths of stay, etc. for residents in Assisted Living facilities. Medpac has noted that for many providers, particularly the larger national chain organizations, that hospice care in this setting is typified by longer stays and thus, monitoring is warranted.
- General Inpatient Care: OIG will continue to monitor the utilization of General Inpatient Care within the hospice benefit for appropriateness and potential abuse. As General Inpatient Care pays a higher per diem and many hospices maintain their own inpatient units, the concern on the part of OIG is misuse or abuse for payment or, to mitigate (agency) staffing shortages where the better alternative for the patient is Continuous Care.
Home Health
- Reimbursements/Payments: The OIG will continue to monitor payments made to agencies principally for accuracy. Prior investigations by the OIG identified that at least on in four claims were incorrect and potentially, fraudulent. This initiative is a continuation of ongoing concerns by the OIG of excessive fraud and or waste in the Home Health sector principally due to improper application of the Medicare benefit and lack of substantiated medical necessity and/or supported clinical documentation of appropriateness of care (e.g., therapies particularly).
LTAcHs and Inpatient Rehab Facilities
- Adverse Events: The OIG is targeting both settings for an analysis of adverse events/temporary harm circumstances to patients in the setting (falls, infections, etc.). Inpatient Rehab Facilities provide 11% of post-acute inpatient therapy services and growth over the past decade or so has been consistent and steady. Questions however have arisen regarding the actual value of such care compared to the care received in an SNF. The SNF is reimbursed substantially lower than the IRF even though many SNFs staff sufficiently to provide the same level of therapy services (up to 3 hours per day). Similar concerns have risen within the LTAcH setting as to cost vs. outcome and quality, particularly as compared other setting comparable, lower cost settings such as SNF. There continues in Washington, a generalized view that post-acute payment reform is overdue, particularly given the rapid expansion of the sector. Within the payment reform movement is the growing view that setting differentiation and thus payment differentiation at the inpatient level is no longer warranted and consolidation is required to rid the excess capacity and reward economically efficient providers that demonstrate higher quality outcomes (SNFs in particular as well as rural swing bed hospitals and to a lesser extent, home health providers and outpatient providers).
CMS, Proposed ACO Regulations and a Post-Acute Analysis
Late last week, CMS (Centers for Medicare and Medicaid Services) issued the proposed regulations for Accountable Care Organizations (ACOs). As is typical with CMS and all things PPACA related, the document is nearly 500 pages. I have read and begun to digest (creating of course, indigestion) the entirety of the document. As I have prepared copious notes and questions more than answers, it will take me another day or so to formulate a coherent analysis, particularly as the information pertains to post-acute providers. Given my workload at the moment, I will endeavor to have a post up by Friday at the latest.
Hearing also from lots of sources continued questions on RUGs IV, questions regarding new hospice requirements, and of course, questions regarding the latest budget release from House Republicans and implications for Medicare, Medicaid, and the PPACA, I have more than a bunch to sift through and ultimately, post thoughts on and hopefully, some guidance. Suffice to say, these are interesting times for health care providers and the sands are shifting constantly. A significant shift toward a faster death for the PPACA will undoubtedly reform what we “think” we know today about ACOs, Medicaid and even Medicare. Stay tuned and feel free as many of you do, to drop me a note regarding a topic, your insights, or a question that I may be able to answer or steer you to an answer/resource.
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