Bundled payment demo has nursing homes seeing stars

Hospitals in more than five dozen metropolitan areas will soon have no choice but to take bundled payments from Medicare for hip and knee replacements. And the skilled-nursing facilities that do business with them face a stark reality of their own.

Medicare will give hundreds of hospitals more flexibility in letting patients recover from such procedures in brief nursing home stays, which are significantly less expensive than hospital care. But only nursing homes that rank average or better on national quality scores will qualify for a waiver. That will exclude 1 out of 3 nursing homes in the 67 chosen areas from getting referrals for services covered in the payment bundles, according to an analysis of the markets, and the latest scores on Medicare's five-star quality ratings. In some areas, as many as 80% of nursing homes will be disqualified.

The payment program will make hospitals financially accountable for the cost and quality of all medical services related to lower-joint replacements during a patient's hospital stay and for 90 days after. Hospitals win by holding costs below what they're paid under the bundle.

The program waives limits on using skilled-nursing facilities—specifically, a patient can be referred to a nursing home without a hospital stay spanning at least three days. But the facility must have at least three stars on the CMS' Nursing Home Compare website.

The CMS has incorporated the strategy in other initiatives, but its use in the new mandatory demonstration is a significant expansion, and underscores the Obama administration's eagerness to tie more Medicare spending to quality. It also may accelerate the consolidation already underway among post-acute providers.

“This is the new reality,” said David Grabowski, a Harvard health policy professor. “You can't play here if you're not a three-star facility.”

The policy highlights the wide variations in quality provided to patients too frail to go home but too healthy for the hospital. Medicare beneficiaries with new hips and knees frequently belong in that category, and lower-joint replacement is the most common surgery for Medicare patients. Medicare spending for skilled nursing varies by as much as 50% from market to market.

The mandatory bundle starts in April for hospitals, but the new skilled-nursing policy takes effect in 2017. Patients will still be free to choose a nursing home outside the hospital's referral network, but those referrals heavily influence patient choices. Plus, Medicare won't pay for skilled nursing at a facility with fewer than three stars unless the patient has been hospitalized for three or more days before being transferred.

That means nursing homes with lower quality ratings could see a significant loss in patients and revenue, creating pressure in the coming year to bolster performance before the policy takes effect.

“The hospitals, and discharge team at the hospital, and the physician, they have very significant sway into where that patient goes,” said James Michel, senior director of Medicare reimbursement policy for the American Health Care Association, a trade group for skilled-nursing, assisted-living and subacute-care facilities.

Fifteen nursing homes operate in West Monroe, La., one of the areas where hospitals will be compelled to manage care for joint-replacement patients under the payment bundles. But just three of those facilities have at least three stars.

Without the necessary stars, “you may not even be allowed to compete,” said Eddie Gardner, vice president of operations for CommCare Corp., a not-for-profit company with 11 Louisiana nursing homes, including one in West Monroe with one star. CommCare is working to improve quality across the company so none of its homes forfeit the chance for new revenue. The company has two nursing homes in the New Orleans area included in the program. One has one star and the other has four. But nursing homes may find it hard to improve their quality scores, Michel said.

Medicare's five-star rating combines scores in three categories: quality, staffing, and health and safety inspections. The last category drives more than half of the overall rating. However, stars awarded for inspection results are based on statewide rankings, so nursing homes that rank at the bottom compared with peers get one star, regardless of performance. The bundled-payment program also creates intense pressure for hospitals to carefully coordinate care after patients are discharged, and to choose high-quality providers for referrals.

Under other Medicare reform initiatives with similar policies on skilled nursing, some hospitals have aggressively vetted nursing homes to develop high-quality networks. Partners HealthCare in Boston added additional referral criteria, including nursing staff tenure and how quickly doctors meet with new patients.

Some hospitals in areas the CMS picked for the new program have already started working on similar strategies. In Flint, Mich., administrators at Hurley Medical Center met in September and approached four skilled-nursing facilities to discuss a possible referral network. Six of the 15 SNFs in the market have just one or two stars.

Catholic Health Initiatives, with 19 hospitals included in the program, has developed an extensive process to assemble preferred networks of post-acute providers. The Englewood, Colo.-based health system starts with a request for proposals, then reviews quality data, conducts on-site surveys and interviews candidates.

Such strategies suggest hospitals are responding exactly as policymakers intended. The bundled payment is designed to change their culture, said Robert Mechanic, executive director of Brandeis University's Health Industry Forum. “What they do can't stop at the hospital wall,” he said.

—Data analysis by Art Golab