Healthcare Business News
Kindred President and CEO Paul Diaz

Kindred's Diaz calls new LTAC payment rules 'opportunity'

By Beth Kutscher
Posted: January 15, 2014 - 4:15 pm ET

Kindred Healthcare has confirmed what many investors suspected after the CMS released its new payment policy for long-term acute-care providers—the changes will sting but Kindred is well-prepared to weather them.

Under the new rule, LTAC providers would be reimbursed at the full prospective payment system rate if patients have spent at least three days in an intensive-care unit or at least 96 hours on a ventilator. All other stays would receive a per diem “site-neutral” payment rate.

“This site-neutral rate is a very exciting proposition for us,” President and CEO Paul Diaz said at the JPMorgan Healthcare Conference in San Francisco. “We definitely view it as an opportunity to better align cost and care.”

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Medicare fee-for-service patients make up about 61% of Kindred's business, Diaz said. Of those, about 30% are already paid whatever is lower—at cost or the inpatient PPS rate—and will move to the site-neutral rate.

Although moving to a per diem rate could put pressure on its margins, most of the savings for CMS will come from lower acuity patients, Diaz said, and Kindred's patients tend to be higher acuity.

The change is expected to save $3 billion over 10 years to help stave off payment cuts to physicians.

In addition, the rule eliminates the 25-day length-of-stay requirement, which Kindred executives said would provide greater flexibility for managing length of stay and potentially allow it to grow its commercial business by freeing up capacity. “We've had to turn down managed care because we were close to the 25-day length of stay requirement,” Diaz said.

When CMS announced the proposed rule change, investors cheered the decision for being better than the worst case scenario and for removing some uncertainty for LTAC operators. The changes start taking effect Oct. 1, 2015, and will be phased in during the following three years.

The greatest impact won't come until summer 2018, Diaz predicted. “Operationally, we have a lot of runway to manage this,” he said. “While this is material … it's not a material change in how we operate.”

Separately, Diaz said Kindred is growing its high-margin rehabilitation and home-care divisions, while reducing its skilled-nursing facilities. It also plans to invest in its care-management division. “This is really the engine for growth and innovation for us,” he said.

Follow Beth Kutscher on Twitter: @MHbkutscher

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