Kindred seeks to shake up post-acute care continuum

Kindred Healthcare, the nation's largest provider of post-acute care, traditionally focused its business on running skilled-nursing facilities.

Just three years ago, SNFs accounted for nearly 47% of the publicly traded company's total business. Fast forward to 2013, when the Louisville-based firm completed the first phase of a repositioning strategy that will reduce its SNF operations to about 21% of total business this year. Since 2010, it has steadily expanded its home health and rehabilitation services divisions through acquisitions of smaller providers. The goal is to develop a coordinated model for acute and post-acute care that experts say represents the future for post-acute providers.

So far, Kindred has established 12 integrated-care markets, each designed to provide a full array of post-acute services, including transitional hospital care, short-term rehabilitation, skilled nursing, home health, palliative care and hospice, with plans to expand to as many as 25 markets over the next several years. It already has partnered with Cleveland Clinic to serve that system's post-acute care patients in Cleveland, and is working with Cleveland Clinic on a Medicare bundled-payment demonstration involving shared savings and losses.

“If we're creating a more seamless experience helping to manage these care transitions, we can simultaneously not only improve patient outcomes but reduce costs,” said Kindred CEO Paul Diaz. That will help “differentiate ourselves in the minds of payers, accountable care organizations and hospital systems.”

But restructuring the company to strengthen its post-acute care continuum and prepare for the revolution in payment has been costly. Kindred reported a net loss of $106 million in the third quarter of 2013; $86 million of that was the result of discontinuing operation of 136 facilities mostly within its skilled-nursing division.

Kindred—whose predecessor Vencor was founded in 1985 and which reported revenue of $6.2 billion along with a net loss of $40 million in 2012—is among a number of post-acute providers banking on the likelihood of payment for post-acute care changing from fee-for-service to a value-based model. This looming shift has prompted some operators to reorganize their business and delivery systems to position themselves for sharing financial risk with insurers and other providers through accountable care organizations, bundled payment and capitation. Currently, it's rare for post-acute providers to enter risk arrangements.

Having a post-acute provider coordinate and manage the full range of post-acute services is “a turnkey solution for hospitals and health systems and accountable care organizations, and to some degree, managed care,” said Andy Edeburn, vice president of continuum strategies for consulting firm Health Dimension Group, based in Minneapolis. “It's very, very much a burgeoning movement throughout the industry.” Edeburn said Kindred's model would seem to allow the company to work with any payer.

Policymakers and payers are intensely interested in coordinating care and controlling post-acute care costs, which have been growing faster than other healthcare costs. Many attribute the cost growth to the fee-for-service payment model rewarding volume, though others see the rise of for-profit operators as an important factor driving up utilization. In addition, many quality-of-care problems have been tied to poor coordination of care after patients are discharged from the hospital.

The rate of Medicare spending growth for post-acute care—including skilled nursing, inpatient rehabilitation, long-term care hospitalization, home care and hospice services—rose 6.6% a year from 2005 to 2010, according to a 2012 report by the National Health Policy Forum. In 2012, fee-for-service Medicare spending on skilled nursing, rehabilitation facilities, long-term care hospitals and home care totaled $62 billion. To address that rapid growth, the Patient Protection and Affordable Care Act called for reducing the annual Medicare rate increase to post-acute care providers. President Barack Obama's fiscal 2014 budget seeks to save Medicare $79 billion over 10 years by reducing pay updates to post-acute providers by 1.1% annually from 2014 to 2023, which providers strongly oppose.

Despite the urgent need, reorganizing the vast post-acute care sector to curb cost growth and improve quality involves tough challenges, given how fragmented it currently is, with thousands of small operators across the country. Even so, post-acute providers increasingly are being required to show that the care they deliver produces value. Under the Affordable Care Act, the CMS developed plans to implement value-based purchasing programs for SNFs and home-care providers, with incentives that reward high-performing providers and penalize others.

Given these market and policy shifts, Kindred embarked on a five-year plan to create integrated-care markets across the country, said Diaz, who is an attorney and accountant by training. Diaz, who has headed the company since 2004, had reported total 2012 compensation of $4.6 million.

“If we're going to coordinate and support the (patient) recovery process with the goal of maintaining wellness and getting folks back to an active life, then we ought to be deep and broad in terms of our service capabilities,” he said.

Kindred Healthcare's predecessor company was founded in 1985 under the name Vencor. In 2001, after going through Chapter 11 bankruptcy, the firm was renamed Kindred and has grown to become a Fortune 500 company, with more than 62,000 employees at 2,100 service sites in 46 states. It has 116 transitional-care hospitals, 169 skilled-nursing facilities, 109 inpatient rehabilitation facilities and more than 100 home health and hospice locations. Kindred's 2012 revenue of $6.2 billion was an 11% jump over its revenue of $5.5 billion in 2011.

Last year, Kindred agreed to pay more than $8 million to settle a California class-action lawsuit filed on behalf of residents in the company's California SNFs, alleging it failed to meet state staffing requirements for its nurses between November 2006 and September 2009. Like other long-term care operators, Kindred has faced its share of negligence lawsuits associated with patient adverse outcomes. In 2012, the company warned that it might consider exiting the nursing home business in Kentucky if there were no changes in that state's liability laws. Diaz was quoted as saying the company paid out $70 million in malpractice costs in 2011.

Kindred's new integrated-care market approach operates under the company's Care Management Division, created last August and combining its home-care, hospice and palliative-care services. Under the integrated-care approach, patients referred by hospitals to Kindred facilities are assigned a transitional-care nurse, who acts as their care navigator throughout the duration of their post-acute care. Members of Kindred's post-acute care team and the client hospital share real-time access to patients' electronic health records.

The transitional-care nurse provides the patient's primary-care physician with a weekly summary of progress on the patient's conditions, addressing any concerns or questions the doctor raises. There is also medical oversight provided by staff physicians at each Kindred care site. The transitional-care nurses continue counseling the patients even as they return home, overseeing the delivery of needed medical equipment and medications as well as arranging transportation to visit their primary-care physician.

Kindred has contracted for the past five years with the Cleveland Clinic for the coordination of post-acute care for that health system's patients in Cleveland. “Healthcare reform is pushing all of us to figure out how to take care of a patient in a very seamless manner across different venues where they receive healthcare,” said Dr. Eiran Gordeski, director of the Cleveland Clinic's Center for Connected Care. “We definitely want to work with post-acute care providers who are thinking about the continuum of care and are trying to make that transition of patients from one venue to another as seamless and as safe and as well-coordinated as possible.”

The Cleveland partnership was selected last January to take part in a three-year CMS demonstration of a bundled-payment model based on performance accountability for episodes of care. The medical director for the Cleveland Clinic's Center for Rehabilitation, who also serves as chief medical director for Kindred's integrated-care market in Cleveland, is providing medical oversight for the demonstration.

Under the CMS' Bundled Payments for Care Improvement initiative, Kindred is responsible for the health outcomes and cost of treatment for Medicare patients diagnosed with seven conditions—chronic pulmonary disease, congestive heart failure, major joint replacement, sepsis, pneumonia and other respiratory infections—for 60 days after discharge from the acute-care hospital.

The demonstration involves both upside and downside risk. Medicare sets a target price based on historical fee-for-service payments over 60 days post-discharge for Kindred's population of Medicare patients, with a discount built in. Payments are made at the usual fee-for-service rates, after which the aggregate Medicare payment for the episode is reconciled against the target price. Any savings go to Kindred and may be shared with its provider partners. But Kindred has to repay Medicare for any amounts incurred above the target price.

Brent Feorene, president of Colonnade Healthcare Solutions, a Westlake, Ohio-based post-acute strategy consulting firm, said only a few other large post-acute providers have the size and resources to organize a broad, coordinated post-acute care model on the same scale as a Kindred, such as Nashville-based Brookdale Senior Living and Baton Rouge-based home health giant Amedisys. That leaves most other post-acute providers with the choice of getting acquired or collaborating with other smaller firms to survive.

“There is an attempt by some players that have the technology and capital to build something that could be called a post-acute solution so that you could work with a managed-care plan or an ACO,” he said.

Amedisys is another post-acute provider moving to adapt to the new world of ACOs and other alternative payment models. During the past several years, it has focused on coordinating care with acute-care providers to improve patient outcomes. “Care coordination is what's going to be necessary to solve a lot of the fragmentation of healthcare that we have,” said Dr. Michael Fleming, Amedisys' chief medical officer.

Fleming said his company works with four ACOs as their preferred home-care provider and also is participating in the Medicare bundled payment initiative. With a staff of more than 10,000 people providing home and hospice services in 37 states, Amedisys uses a nurse “care transition coordinator” who works with patients' primary-care physicians to manage their post-acute care. The goal is for the coordinator to contact the patient no later than 24 hours after hospital discharge. The result has been a decrease in hospital readmissions. “We see the ACO model as a glimpse of the future of healthcare arrangements,” Fleming said. “It's important that our role be included in that.”

These efforts to integrate acute and post-acute care are a growing trend among post-acute care providers, said Morningstar analyst Michael Waterhouse. One company, Nashville-based naviHealth, one of whose leaders is former CMS Administrator Tom Scully, wants to become the premier navigator of post-acute care services. The company contracts with hospitals and insurers to coordinate post-acute care by using analytical technology to connect patients to the most appropriate care at a reduced cost.

NaviHealth President Clay Richards said his company's business model is based on accepting financial risk through capitated contracts. “We started with the premise that we want to have skin in the game and we want to be risk partners, whether we're working with Medicare Advantage partners or whether we're doing a bundled demonstration,” Richards said. “We will guarantee a savings below their current spend and then share in that value with our customers.”

Cigna Corp.'s Medicare Advantage plan, called HealthSpring, began working with naviHealth last September to provide support technology and care managers for about 100,000 plan members in the mid-Atlantic market. HealthSpring itself has a care-coordination team led by nurse practitioners and physician hospitalists who manage care for about 1,200 patients following hospital discharge. The coordinators regularly visit the patients and manage their doctor appointments and medications, as well as overseeing any moves to other care facilities and their return home.

“As a result of payment models evolving from volume to value, it creates more opportunity for healthcare professionals and payers to collaborate more closely,” said Graham Harrison, a Cigna-HealthSpring spokeswoman.

NaviHealth's Richards said more post-acute providers like Kindred will be jumping into the arena of coordinating services given the pressing need to control spending in this sector. “This is a huge market,” he said. “We think there's more than enough room for both (us and Kindred) as well as many others that are looking to manage this care.”

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