A period of adjustment

It has been about three years since White Oak Management, which operates 15 skilled-nursing facilities in the Carolinas, began to embrace the growing shift to Medicare managed-care contracts, along with the negotiations and new administrative requirements that come with these deals.

As more beneficiaries enroll in Medicare Advantage and as more states look to rein in costs through expansion of Medicaid managed care, post-acute providers such as nursing homes are facing the kind of managed care growing pains hospitals experienced in the 1990s. That's been accelerated by the development of alternative payment models such as accountable care organizations in the private sector as well.

Providers and patient advocacy groups worry that managed care might have harmful effects on vulnerable post-acute patients, particularly those with disabilities who need long-term services and supports in their homes and communities. Those concerns have arisen in New York state, which last year required Medicaid patients needing extended long-term care to enroll in a managed-care plan.

“What we've seen in New York as it's been expanded is a great deal of distress, especially among small agencies,” says James Lytle, a partner at consultancy Manatt Health Solutions. “They were just used to billing the state. Now they have to confront the challenge of billing 10 to 12 plans that have slightly different requirements. I'm sure they'll get over that learning curve, but there have been cash-flow issues and significant breakdowns in payment as the organizations try to figure out what this new world looks like.”

Nevertheless, post-acute providers are finding they can no longer survive solely in the fee-for-service world. Instead of primarily billing traditional Medicare and Medicaid, these providers increasingly are negotiating with managed-care plans to increase their revenue stream and stay viable.

“We used to push it off and say, 'No, we really don't want your product' because we were so standardized,” says John Barber, chief financial officer of Spartanburg, S.C.-based White Oak. “More and more of these Medicare Advantage beneficiaries started moving in and need care. There came a time in the past three years that we pretty much threw in the towel.”

At White Oak, Medicare Advantage plans account for 8% of the company's payer mix, a percentage that Barber says has doubled in the past two years. Nationally, Medicare Advantage enrollment has increased by 30% since 2010. This year, 14.4 million Medicare beneficiaries, or about 28% of the program's enrollment, are in Medicare Advantage plans, which represents a nearly 10% increase since last year, according to the Kaiser Family Foundation (See chart).

James Michel, director of Medicare research and reimbursement at the American Health Care Association, which represents skilled-nursing and other post-acute providers, says Medicare Advantage plans are attractive to beneficiaries because they often offer lower co-payments or co-insurance.

“As Medicare Advantage grows, our members are having to contract with those plans to get those patients,” Michel says. This has created challenges for providers who know what they get paid under traditional Medicare. But when dealing with managed-care plans, providers must negotiate rates and comply with each plan's requirements, Michel says. “It's a very different way of thinking about Medicare patients now. It's not as straightforward, it's not as transparent for them.”

Matthew Murer, chairman of the healthcare practice group at law firm Polsinelli, says post-acute providers are at a disadvantage in this process because they don't have the experience dealing with private payers in the way hospitals and physicians have in the past. Also, when it comes to Medicaid, post-acute providers could lobby their state lawmakers if they were unhappy with the Medicaid rates, but that's not possible when dealing with private insurers in managed-care plans. He also says this trend has led to consolidation in the industry, as smaller providers realize it helps to be a part of a larger group in negotiations.

In contracting with multiple plans, post-acute providers also face the administrative burden of understanding each plan's requirements on everything from patient co-payments to pre-authorization before a patient can enter a facility. White Oak's Barber says his company now has a full-time employee who deals solely with managed-care contracting.

“It's a lot of effort and a huge cost to them, and they don't get paid for it,” Michel says, “If anything, they get paid less than what they do for (traditional) Medicare.”

Tammy Trasti, vice president of managed-care services at Plano, Texas-based Golden Living, echoes that view. She says traditional Medicare payment rates are better than Medicare Advantage rates. Golden Living, which operates about 300 skilled-nursing facilities and also provides rehabilitative, assisted-living and hospice services, saw the number of Medicare Advantage plans it deals with increase by 14% in the past year.

“I would say about half of our business is (resource utilization group)-based, which means we bill just as we would for (traditional) Medicare,” Trasti says. “But that doesn't mean we get paid as we would for Medicare.” Depending on the market, Trasti says, managed-care rates could be 10% to 40% less than traditional Medicare rates.

To help post-acute providers navigate the managed-care world, the AHCA is preparing a Medicare Advantage contracting guide, targeted primarily to the organization's smaller members. Michel describes it as “Contracting 101.” Written with the help of attorneys and managed-care contract experts, it is expected to be available on AHCA's website later this year. In addition, the association will host webinars and conference calls to help providers learn how to use the tool.

Murer of Polsinelli advises his post-acute clients to make a strong case for what sets them apart in their market, whether they are the best provider at reducing patient falls or specializing in ventilator care.

In addition, he says he expects to see bankruptcy filings in the post-acute segment in the next five years as some providers might accept lower rates with the hope that insurers will drive volume to their facilities. And that might not pan out. “The trade-off in managed care is, I'll take a lesser rate, but you'll drive volume to me,” Murer says. “If I'm an orthopedic surgeon, I'll take 80 cents on the dollar, but I'll get more patients. You just have to be more efficient to see more patients,” he adds. “In long-term care, you can't get the same efficiency.”

That's why Murer tells his clients they need to know what rate they absolutely cannot go below. “You don't want a rate where you run out of business,” he says.

As post-acute managers sharpen their contracting skills, Trasti of Golden Living urges these providers to take a broad view that considers the care-coordination goals of managed care. Providers need to shift away from the fee-for-service imperative of maximizing volume and length of stay. Instead, they should work closely with providers and patients from the moment of the patient's hospital discharge, communicating well and helping patients transition successfully to a home setting. “It is a culture change,” Trasti says, “But it can be done.”

Meanwhile, states are moving more long-term services and supports—including personal services in the home, assisted living or residential arrangements—into Medicaid managed care, says Mike Cheek, vice president for Medicaid and long-term care policy at the AHCA.

According to a recent analysis from the association, many state Medicaid programs are delivering acute-care services to nondisabled adults and children through managed care. And states are expanding their Medicaid managed-care programs to include long-term services and supports and improve care coordination between acute and post-acute services.

“Between now and 2014, it looks like we'll be moving from about 16 states with some sort of Medicaid managed care for LTSS to 29 states actively working on this,” Cheek says. In such states, the Medicaid managed-care plans typically oversee both the acute-care and long-term services and supports benefits.

That push is underway in New York state, which has addressed the growth in spending for long-term care services, particularly home care. Beginning in August 2012, the state required that any Medicaid recipient who needs more than 120 days of home- and community-based services must enroll in a managed long-term care plan.

Anthony Fiori, director at Manatt, says he considers skilled-nursing care the “last frontier of risk.” It tends to be the last benefit that states bring into their Medicaid managed-care programs because it's usually the most difficult to manage. Lytle adds that it's also the most expensive form of care.

The AHCA's Cheek says there is concern in both the provider and beneficiary communities about the pace of implementing these Medicaid managed-care changes. Some states are planning to start managed-care programs for long-term services and supports next year, which he says is “concerning” given that states like Minnesota, Wisconsin and Massachusetts have been working with the managed-care plans for decades.

Cheek laid out the industry's concerns in dealing with health plans. He cautions that health plans might not understand the challenges in serving their vulnerable patient populations. For instance, Cheek says that determining the right length of stay for a long-term-care patient is quite different from setting a length of stay for a surgical patient. “Cost-control mechanisms don't really work with this population,” he says.

Next, there is the added administrative burden of dealing with each managed-care plan's requirements, which often necessitates hiring additional staff. There also are concerns about negotiating adequate rates. Some states, such as New York, require managed-care plans to use the state's fee-for-service rate for long-term services and supports for a limited period of time before they must begin negotiating rates with providers. But even then, Cheek says, the payment rate is frequently inadequate.

“We're already starting at a point of underpayment for fee-for-service,” he says.

For all of the challenges that post-acute care providers face in navigating the new managed-care world in Medicare and Medicaid, providers, advocates and policy analysts agree they don't have much choice.

“It's really important for all of our members to realize this is the new way of doing business,” says the AHCA's Michel. “To ignore it is to your own detriment.”

Follow Jessica Zigmond on Twitter: @MHjzigmond