New nursing home payment model kicks in next month

Skilled-nursing providers continue to gear up for a reimbursement overhaul next month, a transition they hope will reward outcome-based care but could also hurt therapy-oriented facilities.

The CMS is scrapping the fourth iteration of what’s called the resource-utilization group framework, which primarily bases pay on the volume of therapy services. In its place will be the Patient Driven Payment Model based on acuity and other data-driven characteristics akin to bundled payments.

The former reimbursement model encouraged potentially unnecessary therapy services, the CMS said, adding that it aims to eliminate that motivation while reducing providers’ administrative burdens. This “budget-neutral” change set to take effect Oct. 1 will shuffle a new set of “winners” and “losers,” likely pinching SNFs that have boosted investment in therapy as well as those treating fewer medically complex patients, experts said.

“This is a total shift of the entire system,” said Gerald Stoll, a vice president with the healthcare division of Hub International Northeast, a global insurance brokerage. “The SNF world has been run basically on fee-for-service with Medicare to capture as much therapy as possible. This forces facilities to look at not just the short-term needs but the complete diagnostic on the resident to capture all medical needs.”

SNFs will screen residents for issues like depression, which largely weren’t looked at before, added Stoll, who lauded the change.

Good Samaritan, a post-acute provider with a 24-state footprint that recently merged with Sioux Falls, S.D.-based Sanford Health, is positioned well since it’s imperative under the new model for SNFs and hospitals to share data to more accurately assess patients, said Nate Ovenden, lead reimbursement adviser at Good Samaritan. The organization has been prepping for the change for about two years since it was first proposed, he said, but more work needs to be done, particularly on the data-sharing end.

“Under PDPM, it is important to have access to information from the hospital or upstream provider,” he said. “You have one shot to get the medical assessment right with this model, so it is important to get information and have access to the hospital EHR on the day of submission.”

Therapy hours will likely fall under PDPM, which includes a provision that group and concurrent therapy minutes can account for no more than 25% of the total services provided to the patient.

“There is no question in my mind that therapy hours are going to be a fraction of what they are today,” Stoll said. “SNFs might not be going after those hip- and knee-replacements anymore. It’s probably not a good time to own a therapy company now. But if you do, you need to adapt and change the business model tremendously.”

Around 140 of 150 Good Samaritan facilities will benefit from the new payment model. However, the 10 or so that will see payments decrease are the highest revenue generators, Ovenden said. They are urban facilities that are receiving the maximum amount of payment for therapy for hip- and knee-replacement patients largely because they have access to therapists, he said.

One of the misconceptions is that urban facilities treat more clinically complex patients; many times they are pushed to rural providers that are closer to home, Ovenden said.

“If we put the resident first and focus on clinically appropriate care, you will be successful,” Ovenden said. “I think this payment system is a needed change and is great for everyone in the industry because there are not a lot of financial games to be played under (the current) system.”

However, SNFs won’t have much control of who is referred to them.

“They won’t get to choose every resident and a lot of facilities will take what they can get,” Stoll said. “But what they focus on is going to shift.”

The fundamental qualifications for SNF Medicare coverage still stand. Patients must spend three nights in a hospital and prove the need for skilled care they can’t receive in any other environment. However, nursing facilities must now complete a patient assessment within the first eight days of admission. Under RUG, the patient is assessed multiple times to keep track of therapy hours.

In the new model, clinical needs related to nursing, physical therapy, occupational therapy and speech language pathology, as well as nontherapy ancillary, such as having cystic fibrosis or needing a feeding tube, will determine payment. A sixth component is the adjusted daily rate over the course of the patient’s stay. SNFs will get paid more as length of stay decreases, but will have to balance that with preventing hospital readmissions.

These providers must prepare to take on more complex patients, such as those relying on ventilators, mostly due to the aging population, Stoll added.

In order to optimize referrals, Good Samaritan encourages its facilities to work with local hospitals to establish what the SNFs can treat. “It’s especially important in rural areas to find your specialty and establish a relationship with the local hospital,” Ovenden added.

There are concerns about how the new payment model will affect SNFs’ financial performance since the system did not undergo a demonstration, according to the American Health Care Association, which represents long-term and post-acute providers.

“We really will not know how SNFs perform until we move past the October transitional month and into full operations in November and December,” the association said in a statement, adding that the CMS estimates not-for-profits and hospital-based SNFs will perform very well under the new model, with some exceptions.

SNF margins are razor thin, so a dip in reimbursement could make a major impact, according to the Medicare Payment Advisory Commission. While margins on the Medicare share of their business have remained in the double digits for two decades, according to MedPAC, total margins at SNFs fell to 0.5% in 2017, down from 0.7% in 2016. The average non-Medicare margin, which includes Medicaid and private insurers, was -2.4% in 2016.

Rural areas will likely be the hardest hit, since they tend to rely more on Medicaid, according to Modern Healthcare Metrics. The Midwest in particular has the highest utilization rate for post-acute care SNF services and has been least successful in the past decade in reducing utilization, data shows.

Fewer Medicare beneficiaries are using SNFs across the country, which could further dent margins. Utilization in the Northeast fell the most, moving from 1,675 SNF days per 1,000 beneficiaries in 2007 to 1,177 in 2017, according to Modern Healthcare Metrics. The South’s Medicare population also sharply reduced its use of skilled-nursing facilities, from 1,469 patient days per 1,000 beneficiaries in 2007 to 1,105 in 2017.

The Midwest stayed relatively constant and, at 1,248 days per 1,000 beneficiaries in 2017, only slightly higher than the Northeast and South. The West, on the other hand, saw its utilization of SNF services fall from an already-low 965 days per 1,000 beneficiaries in 2007 to just 759 in 2017.

In many areas of the country, nursing homes are losing their Medicaid and private-paying clientele to assisted living facilities, home health agencies and adult day care centers.

The ongoing nursing shortage, which will become even more apparent under the patient-driven model, will also compress margins, experts said.

“As the PDPM evolves, we have to figure out proper staffing ratios as we continue to see more and more medically complex residents every year,” Ovenden said. “We have to figure out how to keep our nursing skills fresh and keep our nurses’ clinical competencies up to date. With all of the different complexities in healthcare, that is always going to be important, but the PDPM sheds a light on it.”