The Coming Battle for Post-Acute Care Patients

The United States is rapidly aging. The population of those above 65 years old will increase from 47.7 million (14.8 percent of the population in 2015) to 65.1 million (18.8 percent of the total in 2025). Ten-year growth is highest in the 75–84 age range (49.6 percent), followed by those 65–74 years old (34.8 percent). Medicare spending per beneficiary in the 75–84 age range—$12,805—is 70 percent, due primarily to the presence of multiple chronic conditions of increasing severity. The implications of an aging population to Medicare are significant. Spending is forecast to increase from $647.3 billion in 2015 to $1,282.4 billion, while per beneficiary spending increases from $11,986 to $17,911. 73 percent of the variation is accounted for by post-acute care; acute care, inclusive of readmissions, accounts for an additional 16 percent. In 2013, there were 13.9 million hospital discharges of Medicare beneficiaries. Approximately 5.8 million received some form of post-acute care. In this article, we focus on the challenges and prospects for skilled nursing facilities and homecare agencies in the broader context of an evolving health care ecosystem.

Not All Skilled Nursing Facilities Are Created Equal

Medicare Part A accounts for 25 percent of skilled nursing facilities’ (SNF) revenues, and a disproportionate amount of facility profitability due to a reimbursement rate per day more than two times that of Medicaid and 25 to 50 percent higher than private pay. SNFs face a variety of fundamental, primarily Medicare challenges. First, the SNF occupancy rate declined from 85.5 percent in 2005 to 82.4 percent in 2014, despite a slightly reduced number of facilities and certified beds, and an aging population (demand). During this period, the number of SNF beds per 100,000 population >65 years old has declined from 45.7 to 36.0, -21.1 percent. A preference for home-based care has emerged. Hospital and health system acquisitions, mergers, joint ventures and alliances will eventually lead to a consolidation of Medicare Part A referral sources and changes to referral criteria. These will be driven more by objective cost and quality criteria and less by discharge planner relationships. Episode payment models represent an inflection point in payment reform, care delivery and discharge planning. The Comprehensive Joint Replacement (CJR) model, inclusive of hip fractures (effective 2017) and the cardiac bundled payments initiative, establish target prices each year based on historical regional and hospital-specific data for a 90-day episode of care. Hospital financial accountability will further focus efforts on finding the right post-acute care providers to minimize the total cost of care and frequency of readmissions. Investment in IT for interoperable electronic medical records, and to meet CMS requirements for a standard acute care instrument incorporating elements from the MDS (skilled nursing facilities), OASIS (home health agencies) and IRF-PAI is a burden. Process redesign and change management will be required to create a data-driven organization. The availability of data across the continuum of care will allow for the generation of CMS, payer and provider insights regarding medical necessity (RUGS) and appropriate site of service and also facilitate RAC audits. Changing patient acuity mix is likely as hospitals begin to proactively better manage patients prior to a procedure to reduce the likelihood of a complication. Requirements for quality present difficulty. A wide range in avoidable hospitalizations have been reported; i.e., 10.1 to 18.9 percent, with a mean of 15.1 percent. Nursing Home Compare uses 18 quality measures—5 short-stay and 13 long-stay metrics. The five-star quality rating is based on self-reported staffing and quality measures and health inspections. Cost management must be improved. In 2012, Medicare FFS operating margins by quartile ranged from <4.8 percent to >23 percent, driven primarily by a lower standardized cost per day and cost per discharge. The financial situation, institutional payment rate and waiver initiatives vary by state. Size can cause issues. 50 percent of nursing homes have fewer than 99 beds. Critical mass will be important for referrals, capital investment (inclusive of IT) and the need to attract superior management. SNF bottom line: Critical mass, combined with efficiency (cost) and effectiveness (quality) is necessary to become integral to a referral network. A data-driven culture, driven by a senior leadership with a sense of urgency and deep understanding of local market supply-demand and competitive conditions, are essential for continuous, incremental improvement in an evolving health care ecosystem.

Home Health Challenges

Home health care has its own near-term challenges (see side bar on page 62). For example, a 2014-2017 re-basing will result in net payment reductions of 9 percent. Medicare payments per home health user have declined from $5,679 in 2010 to $5,156 in 2014; margins have declined from 19.1 percent in 2010 to an estimated 10.3 percent in 2015. Similar to SNFs, hospital and health system consolidation—combined with the acquisition of physician practices—will increase focus on the creation of narrow referral networks, comprised of more efficient and effective home health agencies. A significant number of agencies, estimated at one-third by the National Association of Home Care and Hospice, already are inefficient with negative operating margins. Home health providers must focus on attainment of quality targets, including a reduction in ED visits and hospital admissions/readmissions. Quality performance will be critical for inclusion in provider networks participating in chronic care management initiatives and episode payment models Scale can create difficulty. In 2014, there were 12,461 home health agencies. The largest quintile of agencies has a 14.8 percent operating margin, as compared to 6.1 percent for the smallest quintile. Investment requirements in IT and elsewhere are expected to increase, particularly with implementation of the Home Health Value-Based Purchasing (HHVBP) Model. All Medicare-certified HHAs that provide services in nine pilot states will compete on value in the HHVBP model, where payment is tied to quality performance. Payment adjustments, upward or downward, will increase from 3 percent in 2018 to 8 percent in 2022. Home health care bottom line: Opportunities exist for strategic operators and investors to invest in infrastructure, create a culture oriented toward quality and efficiency and expand their footprint in local markets that are highly fragmented. Consolidation is inevitable. Alternative payment models represent a driver for non-facility-based care.

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Home Health Care: A Growing Need for Value

Homecare agencies have advantages based on factors including:

• A significant cost advantage relative to facility-based care
• A patient and payer (Medicare Advantage, Medicaid) preference for home-based care
• A broad range of skilled care and homebound requirements for eligibility, that allows for an increasing number of therapy visits at a higher payment rate
• Establishment of a new reimbursement baseline after the FY17 re-basing, with the potential for subsequent increases
• Annual population growth of 4.1 percent through 2025 in the 75- to 84-year-old patient range, subject to rapidly rising health care costs due to an increase in the number and severity of chronic conditions
• Increasing CMS and provider focus on a potential reduction in ambulatory care sensitive hospital admissions; i.e., preventable hospitalizations given appropriate primary and preventive care. 65 percent of home health episodes are not currently preceded by a hospitalization or post-acute care stay.
• CMS episode payment models focused on the total cost of care, with a focus not only on transition care management (TCM) but also on community-based care for a 90-day period
• Advancing and emerging remote monitoring, digital instrumentation (i.e., stethoscopes), visualization and other technologies can facilitate improved self-management, caregiver engagement and earlier intervention