Select Medical failed to delay the impact of a new payment rule affecting long-term acute-care hospitals. Now the post-acute care provider believes it could be at a competitive disadvantage.
Under the new rule, LTAC providers will only receive the full prospective payment system rate if patients spend at least three days in an intensive-care unit or at least 96 hours on a ventilator. Other lower-acuity stays will be reimbursed under a per diem “site-neutral” payment rate.
The CMS is phasing in the rule change based on the end of providers' cost-reporting year, or as soon as the fourth quarter of this year.
Two of the largest LTAC operators, Select Medical and Kindred Healthcare, were among the providers that applied this year to change their cost-reporting year-ends to avoid the impact of the new rule until the second half of 2016.
Select Medical initially received approval from its fiscal intermediary to make the change, and notified investors in May that it would modify the reporting schedules for 106 of its 110 hospitals. However, the CMS declined to sign off on the move, and Select Medical last month was forced to go back to its original reporting schedule.
The rule change will now affect 18 hospitals in the fourth quarter of this year and an additional 56 hospitals in the first two quarters of 2016.
Select Medical sought the change out of concern that not doing so would put the company at a competitive disadvantage, Robert Ortenzio, the company's executive chairman, said on an earnings call last week.
“If you have various LTAC hospitals in markets that go onto the criteria at different times it's going to be confusing to the referral sources at best,” he said. “At worst, it puts the hospitals that go in sooner at a disadvantage because … there is a limit on the kind of patients that they can take, just those patients with new criteria.”
However, he emphasized that Select Medical is prepared for the rule change and is not concerned about the impact.
On its own earnings call last week, Kindred Healthcare reiterated that it is better-positioned for the rule change than some of its competitors because its patients tend to be higher acuity and volume is increasing for that group. It also sees an opportunity to better manage its costs when treating lower-acuity patients for whom it will only receive the site-neutral rate. The company also indicated on the call that it won't be subject to the policy until next year.
In spite of Kindred's positive spin on the change, there's probably a reason that LTAC operators have been eager to delay the impact of the new rule.
“The transition from the current payment methodology to the new criteria could be more difficult than the financial community generally thinks,” UBS analyst A.J. Rice wrote in a note to clients. “We believe that, if the transition was a clear-cut positive, both leading players in the sector would be pursuing rapid adoption of the new criteria rather than postponing it."