In the subacute-care industry, expectations have exceeded reality. Emerging in the mid-1980s in response to the prospective payment system, and moving into the spotlight in the early 1990s as financial pressures on providers increased, the industry has yet to prove it can deliver the cost savings it has promised. Moreover, after all these years much disagreement remains over just what is meant by the term "subacute care" and whether it's really anything new.
Organizations that have built up their base of subacute services have clamored, so far without success, for a special Medicare reimbursement category for their invention. Payers, in turn, have demanded a detailed definition of the new type of care, along with outcomes measures.
Now, at the bidding of the biggest payer for post-acute services-the federal government-a snapshot of the current subacute industry has emerged in the form of a recently released study by Lewin-VHI. Titled Subacute Care: Policy Synthesis and Market Area Analysis, it offers a mother lode of information on the volatile and evolving subacute market.
The Fairfax, Va.-based consulting firm released its report last November, after HHS commissioned it in 1994. Eagerly awaited by the industry, the 172-page report, along with future studies, will give the government something to chew on as it ponders its reimbursement strategy for this hybrid of care.
The report demonstrates that instead of wasting time finding out exactly what "subacute" means, providers have been forging ahead to see what works best in their own back yards.
They've been busy inventing ways to treat the needs of higher-acuity patients not quite well enough for nursing home or home care.
In many cases, the buzzword "subacute" is assigned to services that are not new at all-"old wine in new bottles," as the study's authors describe them.
In addition, the term "subacute" embraces certain levels of almost all post-acute services, including rehabilitation, long-term care, skilled nursing and even home health.
"The term `subacute care' has come to be used to refer to a level of care-skilled care for patients with complex needs-that some nursing facilities, home-care providers and others have been providing for years under a variety of different names, (such as) high-end skilled care," the report said.
"There's nothing wrong with the old wine," said Barbara Manard, vice president at Lewin-VHI and principal author of the report. She explained that the old services have been depicted in a different light through changes in terminology, "but the new term `subacute' appears to promise something more."
Are post-acute providers delivering on that promise? The answer depends on how that "something more" is defined; but, in general, it seems to be no.
In other words, some providers just ripped down the "nursing home" sign from their front door and replaced it with a "subacute health center" sign.
Others, however, are gradually creating a new kind of care that does differ from the traditional Medicare high-end skilled care.
Subacute-care providers identified aspects of the type of program they're shooting for in interviews with authors of the Lewin-VHI report (See chart, p. 36). However, it's nearly impossible to make an apples-to-apples comparison of programs, even within a single market.
There's no doubt the field is growing rapidly, but exactly how rapidly depends on whom you ask. And the estimated size of the market ranges from $600 million to $3.4 billion (See chart, this page).
The study revealed several trends in today's market:
Subacute skilled-nursing facilities often compete with long-term-care facilities or rehabilitation hospitals for discharged patients. But most providers of subacute care are drifting toward joint ventures and collaborations.
Medicare is the dominant payer for hospital-based subacute skilled-nursing facilities. Ironically, managed-care penetration drives the emergence of subacute care on a market-to-market basis, though it is a relatively minor payer for those services.
There is little evidence that shifting patients sooner from acute care to subacute skilled-nursing care saves money.
Few subacute programs are collecting data on quality or outcomes.
Although the acuity of patients varies widely among different types of subacute facilities, the patients treated generally fall into two categories of care: rehabilitation subacute and complex medical subacute.
Partnerships abound. Post-acute-care providers have been forging partnerships that reflect their particular markets, reimbursement possibilities and cost pressures.
Regulatory barriers, such as state certificate-of-need requirements, are curbing development of subacute units, the Lewin-VHI study found. In several states, the regulations have pitted hospitals against nursing homes in heated battles for subacute beds (See story, p. 39 ).
Yet most turf wars probably will yield to cooperation.
In states with strict CON laws, the only way for hospitals to get skilled-nursing beds and enter the subacute market may be to form partnerships with nursing homes, according to John J. Whitman, chairman and chief executive officer of the Whitman Group, a Huntingdon Valley, Pa.-based subacute consulting firm.
Whitman recommends that hospitals consider both sides of the equation. "Any hospital that's doing or wants to do subacute care should also be reaching out into the community to partner with a few nursing homes," he said (See chart, p. 38 ).
In many cases, nursing homes are taking the initiative to approach acute-care partners. In these arrangements, the nursing home operator uses its expertise to manage the DRG-exempt subacute unit within a hospital.
For example, Atlanta-based GranCare is managing about 40 such units, which it calls subacute skilled-care programs, within hospitals.
The key to these arrangements is flexibility. Depending on the facility's needs, GranCare may enter a partnership agreement in which it has equity participation. Or it may lease space from the hospital to house the unit, according to Scott Athans, GranCare's chief operating officer.
GranCare pays hospitals $250,000 per year and up in management or leasing contracts, depending on the size of the unit, said Kay L. Brown, a senior vice president of GranCare.
The company has a leasing agreement with Sinai Samaritan Medical Center in Milwaukee. In that 35-bed unit, most admissions come from within the nine-hospital Aurora Health Care system, of which Sinai Samaritan is a member. GranCare also recently signed an agreement to manage the 28-bed subacute program at Cedars-Sinai Medical Center in Los Angeles.
"Many hospitals have purported to wish to develop integration strategies, but the fact of the business is they still focus on the immediate walls of their hospitals, and they don't have a post-acute strategy," Athans said. "If the hospital is not developing a unit that replaces the medical/surgical patient, it's not really pushing the envelope," especially as occupancy rates fall, he said. GranCare's specialty medical services generated about 17% of its 1995 revenues of $820 million.
One acute-care provider that is pushing the envelope is 240-bed John C. Lincoln Hospital and Health Center in Phoenix. Within the hospital, a 22-bed subacute unit has been in operation for five years. Across the street, Bryans Extended Care Center, a 10-year-old long-term-care facility, houses a 54-bed subacute unit. The two facilities share a governance board but operate independently.
Both the hospital and BECC have capitated contracts with FHP International, an unusual arrangement. Capitation is almost unheard of in the long-term-care business.
"It's made us look a lot heavier into case management," said Debbie DiCicco, inservice coordinator at BECC.
Although the center is not capitated under the same contract as the hospital, it receives a portion of what the hospital gets per member per month, and in return it must care for any FHP patients from the main hospital. If the center fills up, it contracts with other extended-care centers in the area, which bill BECC for the services, DiCicco said.
In addition, BECC is billed for ancillary services it shares with the main hospital because the two facilities operate independently.
Two types of subacute care. Lewin-VHI surveyors found two ways of understanding subacute care-one in the hospital world and one in the nursing home world.
"There truly is a difference between the in-hospital and the in-nursing home subacute care," said Kathleen Griffin, founder of the International Subacute Healthcare Association, which in 1995 was incorporated into the National Subacute Care Association. She's also president and CEO of Griffin Management, a Scottsdale, Ariz.-based post-acute consulting firm.
"As long as we continue to use the term `subacute care,' it's not helpful because we're not differentiating between these two product lines," she said. In hospitals, it's really a step down from the acute medical/surgical unit. In nursing homes, it's much more rehabilitation-oriented, with an older population. "There is room and a need for both of them," Griffin said.
Patients should go to the most appropriate level of care in the most cost-effective setting, Whitman said. That philosophy has become the mantra of the subacute industry.
For years, hospitals have offered services now called "subacute." However, when PPS made it too costly to keep older, sicker patients for long hospital stays, more nursing facilities had a financial incentive to become Medicare-certified and care for those patients, Whitman said.
With the influx of higher-acuity patients came a need to readjust nursing facility personnel.
In some cases, "the hospital staff is going over to the subacute side since hospitals are shrinking," Lewin-VHI's Manard said. The new services have posed challenges for existing staff. "Those nurses who are accustomed to a traditional nursing home style of care have had to change their mind-sets and adapt to treating the higher-acuity patient," according to the study.
"Many nurses come straight from the hospital," said Michael Kesti, co-chair of the American Subacute Care Association and director of marketing and business development at Cherry Hill, N.J.-based Seniors Management, a long-term-care management company. Nurses need a higher level of skill, especially if they're working with infusion or tracheotomy patients. "Some nursing home nurses don't have those skills," Kesti said.
That reality has led to some controversy with the representatives of nursing home workers, especially the Service Employees International Union. The SEIU led a nationwide campaign against Sun Healthcare Group, Hillhaven Corp. and GranCare last year, claiming the chains are compromising patient care by defining subacute services as anything including skilled nursing. The companies are not staffing their facilities to adequately care for the sicker patients, the union said.
"I think that with reimbursement changes, some of the glitter is going to come off the subacute label," said SEIU spokesman Dave Snapp. "It really encompasses a strategy for maximizing reimbursement."
Large for-profit chains have come to the forefront of the subacute industry because of their ability to gain access to capital, develop post-acute-care networks, hire specialized staff and maintain in-house ancillary services, the Lewin-VHI report found.
The top 10 subacute-care providers, as ranked in a recent issue of the American Health Care Association's Provider magazine, also turned up in the publication's top 25 nursing facility chains. Every one of those 10 were publicly traded, for-profit companies.
With investors pressuring large for-profit nursing home chains to raise their stock value, these chains have found that one way to spur growth is by pouring resources into subacute programs, Kesti said. Wall Street looks favorably on nursing facility chains that report a high percentage of subacute beds.
"That's been very profitable for people who are selling," he said. Smaller skilled-nursing providers have boosted their overall per-bed sale prices by adding even a small number of subacute beds, he said.
Providers cash in. Hospitals have been criticized for double-dipping into Medicare funds through their subacute units.
By forming DRG-exempt skilled-nursing units, hospitals in some cases are legally billing Medicare twice for the same service: once through the DRG for the acute-care services and once for post-acute services, the Lewin-VHI study said.
Wherever providers can maximize margins by converting beds from acute care to skilled nursing, the terms "subacute," "transitional care" or "extended care" seem to pop up.
By whatever label, Medicare-certified post-acute care has boomed in the past decade. The number of hospital-based skilled-nursing facilities jumped 200% between 1986 and 1994, or 14.3% annually, to almost 2,000 (See chart, p. 35).
Medicare payment policies that encourage the discharge of patients into DRG-exempt units will guarantee the development of subacute facilities, which "profit handsomely from the opportunities afforded," the Lewin-VHI report said.
Even though Medicare always has been the dominant payer for subacute care, high managed-care penetration seems to encourage the growth of subacute services from region to region.
"Throughout this study, we were consistently told by subacute (skilled-nursing facilities) that the substantially higher margins provided by managed care and Medicare, compared with Medicaid, were a driving force in industry development. A general rule of thumb, frequently repeated, is that Medicaid margins average about 3%; Medicare, 10%; and managed care, as much as 30%," the Lewin-VHI investigators said.
Managed care tends to cover more patients in freestanding skilled-nursing subacute units, where the stay is longer than those in hospital-based subacute units. Their episodes of care tend to cost less. That's because freestanding facilities tend to offer more subacute rehabilitation care, which includes more ancillary services and less nursing hours than in hospital units, Whitman said.
One company that's attracted managed-care payers while combining rehabilitation with complex medical services in independent programs is American Transitional Hospitals, based in Nashville, Tenn. Beverly Enterprises, based in Fort Smith, Ark., purchased ATH in 1994.
ATH doesn't call itself subacute; instead, its facilities are certified as long-term specialty hospitals. The company rents space from acute-care hospitals to house its units, and may share such services as housekeeping or dietary with the host hospital.
Its strategy is to enter markets where managed care is prevalent.
One such focus area is the Houston market, where ATH has developed three units: one freestanding facility, one unit within an acute-care hospital and one that is the sole inhabitant of a recently closed hospital.
The company runs a cost and margin analysis of each patient every 10 days for the managed-care organizations with which it holds contracts. Acuity is measured daily, with per diems based on levels of acuity.
For example, a low-acuity patient needing four hours of skilled nursing might cost ATH $200 daily and command a $300 daily reimbursement. If the same patient at another time needed 12 hours of nursing care, the per diem might be raised to $1,000 and cost ATH $800.
Patients in ATH hospitals have complex medical needs and usually receive up to three hours of therapy every day. The average length of stay is 37 days.
Although the majority of its operations are independent of Beverly, ATH is testing subacute units in eight of its parent company's facilities. "We need to prove the SNF model," said Robert Crosby, CEO at ATH.
Data void. The long-term-care industry holds that subacute care provided in nursing facilities costs 30% to 60% less than acute care.
But despite the potential for lower cost, there is very little concrete evidence that shifting patients into subacute skilled-nursing beds sooner saves money.
Most of the savings potential in subacute care is only evaluated in terms of daily costs, according to Lewin-VHI's review of available data.
"To look at per-diem cost comparisons really falls short," said Jennie Harvell, who has served as a liaison between Lewin-VHI and HHS' Office of the Assistant Secretary for Planning and Evaluation. "You have to really look at the cost of the episode." Harvell is a program analyst with HHS' Division of Disability, Aging and Long-Term Care Policy.
In addition, there is limited evidence to determine whether outcomes are better in a subacute setting, especially since existing measures only apply to rehabilitation patients. No significant studies have evaluated the outcomes of subacute patients with complex medical conditions.
Lewin-VHI plans to develop methodologies to examine both the costs and the quality of subacute care in the next phase of the studies that HHS has commissioned, Harvell said. Those two reports, which may be combined, are expected to come out later this year.
The consulting firm is in talks with the National Subacute Care Association about combining research efforts to develop these methodologies. Because HHS and the industry association have identified similar research priorities, they hope to cooperate rather than duplicate efforts, Harvell said.
The recent Lewin-VHI study is critical of the methodology of a widely cited report that the American Health Care Association commissioned from Abt Associates in Cambridge, Mass. That report pegged subacute care's potential cost savings at $9 billion in 1991.
However, that study was the most comprehensive cost evaluation to date, Harvell pointed out. "Now the challenge is to come up with something that's a little more refined," she said.
Currently, many cost studies have reflected the self-interests of the providers sponsoring the research. "On the other hand, parts of this industry have been very forthcoming and very self-critical," Harvell said. In particular, provider-sponsored quality studies of rehabilitation patients "generally indicate that (those) patients tend to have better functional improvement in rehabilitation hospitals compared to subacute skilled-nursing facilities," she said.
The Lewin-VHI studies "are not intended as a segue toward regulating the industry," Harvell said. The plan is to find out whether subacute really offers the cost-effective, high-quality services that providers claim it does.