Skilled nursing operators reach a crossroads

by Jeff Shaw

Facing new payment models and a whole host of performance measures, they must adapt or risk getting left behind

By Jane Adler

As healthcare payments shift from the traditional fee-for-service system toward alternative payment models that promote more effective care at a lower cost, skilled nursing owners and operators are scrambling to adjust their business strategies. 

They face a quickly changing and complex payor landscape with new players that include bundled payment programs, accountable care organizations (ACOs), and managed care providers. 

The changes have put owners and operators under pressure to reduce the length of stay for short-term residents, while preventing costly hospital readmissions. 

 

Payors want proof, too

Robust data on patient outcomes is required to demonstrate value. And, despite its flaws, the government’s Five-Star Quality Rating System has become even more important as payors narrow their provider networks to streamline operations. 

“The reality is that skilled nursing facilities are not the masters of their own domain,” says Fred Bentley, vice president of the Center for Payment and Delivery Innovation at Avalere Health, a Washington, D.C.-based consulting firm. “There are significant near-term risks for operators. But there are also upside opportunities.”

The Centers for Medicare and Medicaid Services (CMS) is still the ultimate payor for much of skilled nursing care, both long-term and short-term stays. What’s changing is the way payments are funneled to providers. 

Amid rising healthcare costs and an aging population, the Affordable Care Act included a number of provisions to shift payments to a value-based reimbursement system. The rationale was that the traditional fee-for-service system was resulting in too many unnecessary tests and procedures, without a corresponding increase in positive health outcomes. 

In January 2015, the U.S. Department of Health and Human Services set a goal to tie 30 percent of Medicare payments to alternative quality-based models by the end of 2016, and 50 percent of payments by the end of 2018. 

The changes have spawned a variety of different payment models and experiments linked to quality outcomes. For example:

• On April 1, CMS initiated a bundled payment model in 67 markets for joint replacement surgeries. Hospitals are being held responsible for the cost and quality of care for 90 days after discharge.  

• ACOs, which cover about 8.9 million seniors, are participating in various payment model programs. The latest programs introduce risk sharing. Providers share in the savings or losses based on their quality and cost control practices. 

• Some skilled nursing facilities are participating in a CMS bundled payments program in which the facility is responsible for 90 days of care for a patient after discharge from a hospital. 

• Managed care organizations operated by private insurers are managing Medicaid programs in a number of states.  

A big factor impacting payments is the growth of Medicare Advantage — a type of managed care plan that private insurers offer. Almost one in three people on Medicare — 31 percent or 17.6 million beneficiaries — are enrolled in a Medicare Advantage plan in this year, according to the Kaiser Family Foundation. 

“We need to focus on collaboration with hospitals, ACOs and managed care organizations as they look for ways to provide care in less expensive environments,” says Dr. Kevin O’Neil, chief medical officer with Brookdale Senior Living, whose office is in Sarasota, Fla. “It’s a big issue.”

Brookdale participated in a three-year initiative funded by a $7.3 million CMS grant to reduce avoidable hospital readmissions among skilled nursing and assisted living residents. The so-called INTERACT program provides a checklist and communication tools to help care teams determine when an older person really needs to go to the hospital. 

The program was used in 46 of Brookdale’s assisted living communities and 26 of its skilled nursing facilities. Hospital admissions decreased 17 percent among assisted living residents, and 16 percent for those in skilled nursing. The total cost of care in skilled nursing decreased 13 percent. “This is the next big frontier for geriatric care,” says O’Neil.

Payors are beginning to show interest in other ways that assisted living might help reduce costs, says Donna Torbet, Brookdale’s senior director of business development, whose office is in San Antonio, Texas.

A patient who doesn’t need 24-hour monitoring, but is still not ready to go home, could be sent to an assisted living facility to recover. “Assisted living could offer a transitional period. It could evolve as a significant option for payors,” says Torbet.

 

Markets in transition

The proliferation of alternative payment models varies greatly by market. Some areas have a high concentration of different payors while other locales still operate mostly in the traditional fee-for-service arena. 

Mainstreet, an investment company and developer of post-acute rehab facilities, has 32 short-term rehab or transitional care centers that are operated by other companies. 

Four new Mainstreet facilities are underway, two in Texas and two in Arizona. The buildings will be called “rapid recovery centers.” Mainstreet Health, a relatively new division of the company, will operate the centers. Another six rapid recovery centers are slated to open in 2017. 

“You have to be on top of market conditions,” says Gary Smith, senior vice president of Mainstreet Health based in Carmel, Ind. New markets are selected based on a proprietary system to determine demand for short-stay patients. The system analyzes 15 different sources of data, such as hospital discharge information, to determine the best referral sources for patients.

The Phoenix market, for example, has a high penetration of managed care payors. “It’s a great opportunity,” says Smith. 

Mainstreet plans to open its new project in southwest Phoenix in the first quarter of 2017. The other new Arizona project — located northwest of Phoenix in Surprise — is slated to open in the second quarter of 2017.

About 50 percent of patients in the Phoenix market are in some kind of defined benefit or managed care payment program, says Smith. “Our business model is built around the idea of payments for an episode of care, not fee-for-service.” 

Smith adds, however, that the model is flexible and also works in markets where fee-for-service payments are still predominant.

Mainstreet’s goal is to help people recover more quickly than other post-acute facilities. The advantage for hospitals and payors is a lower cost of care and a better outcome. 

Smith explains that the Mainstreet facilities are more equipped to accept patients with high medical needs than traditional nursing homes. A physician or another qualified professional sees each Mainstreet patient every day. That kind of care can shave as much as two days off a typical hospital stay after surgery, says Smith.

An intensive rehab schedule also shortens the length of stay at a Mainstreet facility, reducing the overall cost of care compared to that of other post-acute facilities. 

Mainstreet is currently in discussions with ACOs about an “emergency room diversion” program. Instead of being admitted to the hospital after an emergency room visit, elders would be sent to a Mainstreet facility, thereby avoiding an unnecessary hospitalization. 

“We talk to the hospitals and payors about why our rapid recovery centers are not just another skilled nursing facility,” says Smith. 

Brookdale’s Torbet agrees that the payor landscape varies greatly by market. She notes that bundled payment systems are widespread in Florida, and becoming more common in California and Colorado. 

The challenge, as Torbet sees it, is for skilled nursing providers to demonstrate high quality in order to become a part of the payors’ preferred network. “If a provider is not delivering quality, they are at risk,” she says. 

 

Show me the data

Skilled nursing operators must be able to provide statistics to back up their claims, sources emphasize. 

Quality measures of outcomes are key, according to Bill Kauffman, senior research analyst at the National Investment Center for Seniors Housing & Care based in Annapolis, Md. Operators must demonstrate that they can track costs and manage them efficiently. “It’s a changing environment. Pay attention,” advises Kauffmann. 

A skilled nursing facility should also have at least a three-star rating from the Five-Star Quality Rating System. “That is the number one metric,” he says, noting that hospitals and health systems are using the Five-Star system to narrow their preferred skilled nursing networks.

The risks aren’t confined to being cut out of a network either. 

Starting October 1, 2018, a skilled nursing value-based purchasing program will link payments to performance and require quality reporting. Facilities that don’t comply could face fines. “Medicare is ratcheting up reporting on quality metrics,” says Bentley, the consultant with Avalere Health.

He adds that the days of managing relatively straightforward procedures, such as a knee replacement, are coming to an end. Many seniors with simple cases are being sent directly home with home health services. 

Skilled nursing facilities must demonstrate to payors and referral partners that they can manage difficult health problems, such as congestive heart failure. 

 

Mitigating payment risk

Recognizing the risks of a quickly changing reimbursement market, some seniors housing owners and operators are taking a different approach altogether. Several big seniors housing and healthcare REITs have spun off their skilled nursing portfolios into separate companies. 

Trilogy Health Services, a private company that focuses on campuses with a continuum of care, is reducing its exposure to skilled nursing by adding more seniors housing to its communities. “We have to be open to change,” says Randy Bufford, president and CEO at Trilogy. “Macro forces are impacting our business.”

The Louisville, Ky.-based company owns and operates 101 facilities in Indiana, Ohio, Michigan, and Kentucky. A typical Trilogy campus features about 50 skilled nursing and 40 assisted living units. 

About one-third of the Trilogy properties include 20 to 36 independent living units, typically patio homes. Trilogy owns and operates seven stand-alone skilled nursing facilities.

While home health is becoming a popular add-on for skilled operators since so many patients are sent directly home from the hospital, Trilogy dropped out of that business five years ago and now partners with local home health providers. “That’s one business where you have to have scale,” says Bufford. 

Trilogy is not exiting skilled nursing altogether, however. Its new project in Madison, Ind., provides a good example. The company converted an old hospital into a facility with assisted living, independent living and two floors of skilled nursing. The project, known as River Terrace, opened in February.

“We are not taking our foot out of the post-acute bucket,” says Bufford. “But we are mitigating our risk by diversifying our revenue sources.”

While many skilled nursing facilities include 100 units or more, Bufford plans to limit
Trilogy’s skilled units to about 55 beds. He explains that if a managed care payor, say a Medicare Advantage plan, does not provide reimbursement rates sufficient to provide an adequate return on investment, then the company won’t participate in an agreement with that payor. 

Since Trilogy’s skilled facilities are relatively small, the company can afford to have less market share than big operators, says Bufford. “We’re taking it market by market.”

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