Leaders of two big companies who work in rehabilitation, nursing home and home healthcare services told investors this week they aren't worried about the financial impact of Medicare's efforts to target their sector for savings. That may surprise federal officials who hope their initiatives will save money on post-acute care for the government and Medicare patients.
In the next two years, Medicare spending will increasingly move into value-based contracts, with financial incentives for hospitals to manage patients' medical costs across the care continuum. One such push starts in April, when hospitals in more than 60 markets will be paid one bundled price for all care during and 90 days after hip and knee replacement operations.
That bundled price will gives hospitals a strong incentive to tightly manage costs after patients leave the hospital to recover in inpatient rehabilitation facilities, nursing homes and through home healthcare. Home health is less costly than the other options, which could mean more business for the sector, as hospitals look for ways to avoid expensive care.
Kindred Healthcare CEO Ben Breier addressed the potential impact for his company's inpatient rehab business at the J.P. Morgan Healthcare Conference in San Francisco. “That's been a little bit overblown,” he said Wednesday. An analysis found the new bundled payment program will affect less than 0.5% of his company's business. Kindred ended 2015 with an estimated $7.1 billion in revenue.
Meanwhile, the company's home health operations may gain new business. Louisville-based Kindred already is participating in Medicare bundled payment programs in which hospitals have volunteered to participate. It has also focused on coordinating care for patients discharged from the hospital in nearly two dozen markets where the company operates multiple post-hospital services, Breier said.
“We believe that care management across the post-acute episode is what's going to be critical to emerging payment models,” he said.
Medicare spending for post-acute care, which includes inpatient rehab hospitals, has rapidly escalated, although spending varies sharply in different markets, for reasons that aren't clear. Provider margins are high for post-acute inpatient rehabilitation, which is more costly than other options such as skilled-nursing facilities. The Medicare Payment Advisory Commission said last March that cheaper skilled nursing care could be used for some patients who end up in rehab hospitals.
HealthSouth Corp., a large publicly traded operator of inpatient rehabilitation hospitals and home healthcare based in Birmingham, Ala., is not expecting much impact on performance from Medicare's growing use of bundled payments, according to CEO Jay Grinney.
One reason Grinney said he isn't worried about Medicare's bundling initiatives is that only a small percentage of the company's Medicare business—2.9%—is in markets where hospitals have volunteered to accept bundled payments. In addition, in those markets where the CMS has mandated bundled payment for joint replacement procedures starting this year, they account for only another 1.8% of the company's Medicare business. “The exposure for us is very small,” Grinney said Tuesday.
He argued that HealthSouth patients are too complex to be cared for in skilled nursing. In HealthSouth markets where Medicare will reimburse providers through bundled payments, 40% of those patients are complex with multiple conditions, Grinney said.
Obama administration officials have promised an accelerated use of bundles, accountable care organizations, and other types of payment and delivery reform models. But Grinney cautioned that the Medicare transformation may not move as quickly as the administration hopes. “We believe that that evolution will continue,” he said. “We are not certain that the timeframe that CMS has established is necessarily achievable.”
Correction, January 13, 2016:
This article has been updated with a correction to the company's estimated 2015 revenue.