The opportunity to fill empty beds, increase utilization and bolster revenues without adding staff has made subacute care one of the fastest growing subspecialties in healthcare.
Hospitals, nursing facilities and independent management companies have discovered that subacute care-the area of patient care that lies somewhere between inpatient hospitalization and long-term-care services-is a golden goose capable of generating more profits for financially healthy institutions or turning around struggling organizations.
Providers also have recognized that subacute care can gain higher reimbursement from Medicare for treating accident and stroke victims, ventilator-dependent patients, and AIDS and cancer patients-in short, patients who require medical care with lengths of stay from 10 to 100 days.
Several healthcare organizations, including Columbia/HCA Healthcare Corp., Community Psychiatric Centers and Beverly Enterprises, have developed subacute-care services and have formed relationships with managed-care providers, many of which are eager to steer enrollees to subacute-care units that say they can effectively treat patients for a third of the cost of traditional hospital care.
Simply put, subacute care is being touted as a can't-miss opportunity for healthcare providers. A sure thing.
If it sounds too good to be true, it just might be.
Not a panacea. Providers should be forewarned: Subacute care isn't for everyone. And it may not be a panacea for anyone much longer.
Too many providers-hospitals in particular-fail to heed the warnings about subacute care's potential problems, said Tim McDowell Jr., a healthcare attorney specializing in subacute-care development with Atlanta-based Parker, Hudson, Rainer & Dobbs. And those problems can dramatically affect the hospital's patient base, use of resources and bottom line, he said.
"For example, a subacute-care unit developed within a hospital-based (skilled-nursing facility) can become a stepchild that isn't utilized to its fullest," Mr. McDowell said.
Despite its growing popularity and proven success as a cost-effective and profitable approach to patient care, subacute care recently has come under fire from several sources. HCFA, state regulatory agencies, physicians, case managers and patient groups all are taking a close look at the field. Specifically:
HCFA's concern stems from the very nature of subacute care: does it truly serve the best interests of patients, or is it merely a series of clever marketing strategies used to capture higher rates of reimbursement?
State officials are concerned about the growing pressure from providers interested in creating a separate state licensing requirement for subacute care as a means to capture higher Medicaid reimbursement.
Physicians are hesitant to refer certain types of patients to subacute-care facilities that can't demonstrate proof of quality patient care.
Case managers are reluctant to send patients to facilities that are separate from acute-care hospitals.
Patient groups worry that providers may forgo quality care to reduce their overhead costs and increase their opportunity to grab more subacute-care contracts.
While more prospectors rush into the subacute-care market, its future may well hang on providers' abilities to effectively demonstrate to skeptics that subacute care is much more than a lot of smoke-and-mirrors marketing savvy.
Dancing with HCFA. Technically, subacute care doesn't qualify for federal Medicare reimbursement as a separate medical subspecialty. That's prompted hospitals and nursing homes to find different ways to capture the highest reimbursement rates-Medicare or otherwise-for their subacute programs. There are some fairly effective ways to do that.
One popular provider strategy is to transform an entire acute-care facility into a long-term hospital. Long-term hospitals-which include rehabilitation, children's and cancer facilities-are exempted from the prospective payment system after being in operation for six months.
These hospitals, unlike their acute-care counterparts, receive higher, cost-based Medicare reimbursement by caring for chronically ill patients for more than 25 days on average-the magic number for qualifying under this length-of-stay standard.
Providers that are successfully using long-term hospitals include Louisville, Ky.-based Vencor, which operates more than 30 hospitals; Community Psychiatric Centers' spinoff, Transitional Hospitals Corp.; and nursing home chains such as Horizon Healthcare Corp., Albuquerque, N.M.
Another popular strategy is for a provider to develop a subacute-care unit within a hospital and license that unit separately from the rest of the facility, often referred to as a "hospital within a hospital."
These types of units also are exempted from PPS reimbursement after being in operation for six months. Providers boast that this strategy can take advantage of a hospital's patient base, ancillary services and staff physicians without having to pay hospital overhead costs.
A third reimbursement strategy, used most by individual hospitals, is to transform a hospital-based skilled-nursing facility into a subacute-care unit. Hospital-based SNFs also are eligible for cost-based reimbursement. However, this type of subacute-care unit typically has a cost ceiling that limits patient stays to five to 20 days.
A fourth strategy-creating a subacute-care unit within a freestanding SNF-is the strategy used most frequently by nursing facilities. Freestanding SNFs also qualify for cost-based reimbursement. However, the amount of cost-based reimbursement in both hospital-based and freestanding SNFs varies according to urban or rural locations.
Skepticism grows. While the reimbursement strategies have been successful until now, the dramatic increase in the number of providers seeking long-term hospital licensing and cost-based reimbursement for subacute-care patients has caught the attention of HCFA officials.
Although providers are pressuring the Medicare agency to develop a permanent reimbursement category for subacute care, the pressure seems to be having the opposite effect. Rather than grease the way for subacute care, HCFA is beginning to closely scrutinize the value of it, said Thomas Hoyer, a HCFA division director of policy development.
Essentially, the agency is questioning whether specialty hospitals or hospital-within-a-hospital operations serve the best interests of patients, or whether they're just ploys used to generate more revenues.
"HCFA has always paid for subacute care," Mr. Hoyer said. "The question is whether we're willing to pay for it the way (providers) want us to pay for it."
HCFA's main problem with subacute care is that its reliance on cost-based reimbursement doesn't encourage providers to care for patients in a cost-effective manner, Mr. Hoyer said. Also, the growth in Medicare payments to hospitals within hospitals and specialty hospitals contradicts HCFA's prospective payment system, which attempts to control rising federal healthcare spending through improved efficiency.
In response to the surge in subacute-care spending, HCFA last year proposed a moratorium on long-term and specialty hospitals as one way of keeping government healthcare spending in check, he said. The agency estimates that it can save as much as $530 million during a five-year period by limiting the number of licenses for these hospitals.
The Clinton administration also has latched on to HCFA's proposal, calling for a moratorium on long-term hospitals in its healthcare reform package.
HCFA officials are even more concerned about the increased use of the hospital-within-a-hospital strategy. They aren't convinced that these units are distinct from acute-care settings, especially considering that they exist within hospitals and use the same services and staff. The only difference, HCFA contends, is that providers get reimbursed more for licensing the hospital in that way.
However, providers such as American Transitional Hospitals are quick to point out that its hospitals within acute-care settings differ from HCFA's definition of a hospital-within-a-hospital.
"(ATH) isn't technically considered a hospital-within-a-hospital," said Robert Crosby, ATH's chairman and chief executive officer. "Our situation is that of a tenant that leases space from a hospital on a fixed-rent basis. The only hospital services we contract from them are dietary and maintenance."
Mr. Crosby said his company, which earlier this month was acquired by Beverly Enterprises in a stock deal valued at about $33 million (April 18, p. 4), is supportive of HCFA's efforts for stricter licensing of subacute care. The deal with Beverly will allow ATH to continue to expand its model of subacute care to other settings, including long-term hospitals, hospital-based SNFs and freestanding nursing facilities.
"Our feeling is that the business of subacute care is a service that is going to be rendered, " he said. "We're going to position ourselves to be in the final setting that subacute care is going to be modeled under."
Another issue at hand is that HCFA isn't convinced nursing facilities are the best setting for subacute care, a concern initially expressed last year by HCFA Administrator Bruce Vladeck.
Mr. Vladeck, who previously served as president of the New York-based United Hospital Fund, has questioned whether nursing home staffs have the necessary training to care for medically complex cases found in subacute-care settings.
However, officials at the American Health Care Association, a Washington-based long-term-care trade group, argue that subacute care in nursing homes-not hospitals-is more cost-effective and has the support of many reform architects, including Hillary Rodham Clinton.
Financially speaking, the agency has "no interest in inventing a new way to pay for this kind of hospital care," Mr. Hoyer said. HCFA will continue to work with providers to examine if subacute care can demonstrate superior patient outcomes and cost-effectiveness, he said, but a definitive answer on the subject isn't expected this year.
State concerns.States also are taking action to control the booming subacute-care market by developing and enforcing certificate-of-need regulations for subacute facilities.
For example, Tennessee's Health Facilities Commission recently denied two Memphis hospitals a CON to develop subacute-care units under the state's existing nursing home guidelines.
In explaining the denial, Tennessee officials pointed to the existing surplus of hospital and nursing home beds in Shelby County and successfully argued that those facilities could handle either end of the subacute-care spectrum without creating another category to house these patients, said Jerry Taylor, general counsel for the commission.
The commission also was influenced by the decision of both hospitals, St. Francis Hospital and Baptist Memorial Hospital East, to prohibit Medicaid patients from using their subacute-care facilities. That may have indicated a motive of taking in money rather than patients who clinically would have qualified for the subacute services.
"That was one of the factors considered in our denial," Mr. Taylor said.
Executives at both hospitals argue the state's decision was based partially on its lack of understanding of subacute care. They also said they will wait until the state develops specific guidelines for subacute care before reapplying. The state is in the process of developing a set of guidelines.
Tennessee isn't the only state that's cracking down on unregulated subacute-care development. Florida and Mississippi have drawn up new guidelines for developing subacute-care units. And Illinois may be involved in one of the most important case studies that could determine the fate of subacute-care delivery (See related story, p. 30).
Additional costs. Those hospitals that do receive licensing and CON approval still must contend with up-front expenses to comply with the terms of the license and literally separate the subacute-care unit from the rest of the hospital, experts say.
Providers often spend from $10,000 to $20,000 per patient bed, or as much as $300,000 per unit, for conversion. Why so much? Hospitals have to abide by specific Medicare requirements to be considered a "hospital within a hospital" or a specialty hospital. This often means adding separate outside entrances, staffing the units differently and adding partitions to separate the unit from the rest of the hospital or nursing home.
Just because a hospital offers subacute care doesn't necessarily guarantee that it will attract patients and fill beds. The key ingredient, of course, is a steady patient flow. It also doesn't hurt to develop subacute-care services in regions where there's a high concentration of managed care, experts say.
But some providers aren't sold on the idea that managed care will have a big influence on subacute care.
"Healthcare systems need to be cautious about planning their entire subacute-care future based on managed care," said Harvey Brown Jr., director of client services at Pittsburgh-based Mercy Life Center Corp., the long-term-care subsidiary of Mercy Health System. "The role of managed care traditionally has been to keep people out of facilities, making the percentage of (managed-care enrollees) needing subacute-care services a small patient population."
By the same token, subacute care isn't in demand in markets where managed-care penetration is low or non-existent. In markets where indemnity insurance dictates healthcare utilization, subacute care's attractiveness is quite limited. That's because providers can't rely on referrals from physicians, discharge planners and case managers-sources that are more likely to keep hospital costs down by moving patients to subacute care.
Physicians, for example, often are reluctant to refer patients to hospital-based subacute-care units because many of them fear they will lose patients to the hospital system once they are admitted, Mr. McDowell said. That concern is magnified when the referring physician isn't formally affiliated with the hospital where the subacute-care unit is housed.
And case managers are going to make sure that patients' needs are met before recommending subacute care, said Catherine Mullahy of the Individual Case Management Association, based in Little Rock, Ark.
While case managers don't directly refer patients to these facilities, they do recommend that patients sent to subacute-care settings go to facilities accredited by agencies such as the Joint Commission on Accreditation of Healthcare Organizations and the Commission on Accreditation of Rehabilitation Facilities.
Both physicians and case managers also scrutinize patient satisfaction data and require subacute-care units to demonstrate good outcomes of care. Some managers personally inspect the units to ensure they provide the type of care advertised, Ms. Mullahy said.
No profit guarantee. One of the biggest myths surrounding subacute care is that providers are virtually guaranteed they'll see profits, experts say. In many cases, quite the opposite may be true.
Nearly two-thirds of all hospital-based skilled-nursing facilities, which house subacute-care units, either lose money or barely break even, according to industry statistics.
Also, a 1992 report from the Prospective Payment Assessment Commission noted that twice as many hospital-based subacute units received less than 85% of their costs under Medicare reimbursement, compared with freestanding nursing facilities offering similar subacute care.