Provider survival strategies in an at-risk environment
Dr. David Gruber
National health expenditures will increase from $3.5 trillion in 2017 to $5.5 trillion in 2025, according to the Centers for Medicare & Medicaid Services. That's two trillion dollars in only eight years, and accounts for 19.9% of the GDP.
Medicare and Medicaid expenditures are forecast to increase in 2017 to 2025 at a compound annual growth rate of 7.4% and 5.9%, respectively due to a rapidly aging population, rising specialty pharmacy costs, increased coverage and the continued inefficiency and ineffectiveness of care delivery.
Skilled nursing facilities have been challenged in recent years by a variety of government and private sector initiatives to reduce the rate of expenditure growth including:
CMS quality, community discharge, re-admission and episode of care payment initiatives; the growth of Medicare Advantage to 31% nationally with more restrictive criteria for admissions, shorter stays and lower reimbursement; inadequate Medicaid reimbursement (accounting for 63% of residents, but 42% payments), especially in certain states; state Medicaid initiatives with a shift in Long-term Services and Supports funding to home care based services; the emergence of preferred SNF networks by consolidating hospital-centric health systems; and a reduction in capital access.
Many facilities remain outdated with limited information technology capabilities.
CMS believes its Medicare payments are adequate, particularly evidenced by efficient providers; i.e., those with higher than average margins and lower costs. Congressional approval of H.R. 4994, the “Improving Medicare Post-Acute Care Transformation Act [IMPACT] of 2014” mandates the development and implementation of a standardized post-acute care assessment tool , and requires MedPAC to (1) evaluate and recommend to Congress features of PAC payment systems that establish, or a unified PAC payment system that establishes, payment rates according to characteristics of individuals instead of according to the PAC setting where the Medicare beneficiary involved is treated; and (2) recommend to Congress a technical prototype for a PAC prospective payment system.
CMS consideration of a change in reimbursement methodology from Resource Utilization Groups, Version 4 (RUG-IV) to a Resident Classification System, Version 1 (RCS-1) is projected to result in an overall 2 percent Medicare payment reduction, though the impact to each SNF will vary depending on care practices.
Skilled nursing facilities need to be considered within the broader context of the healthcare delivery system. In its most recent report, “Provider Survival Strategies in an At-risk Environment,” published in early-November, Alvarez & Marsal highlighted six critical strategic imperatives for providers:
- Patient care (delivery) transformation, which requires an increased focus on patients' comorbidities, social determinants, the total cost of care and the entire care continuum, rather than just acute intervention.
- Population health management, specifically the five to 10 percent of patients accounting for 43 to 68 percent of costs, as focusing on the entire population results in a diffusion of effort.
- Payment reform risk management, with an emphasis on the centrality of payment reform to enterprise risk. For example, the report introduces the concept of a provider hybrid, designed as a provider with risk management understanding similar to payers, but without the depth of investment, capabilities and regulatory approvals necessary to actually create a joint venture or sponsor a health plan.
- Actionable insights (“big data”), which require more than improved data management, reporting and dashboards, but data extraction and ultimately the generation of insights that enable improved decision-making and leads to measurable progress.
- Sustainable physician behavior change (alignment) that reflects feelings of disengagement, loss of autonomy and productivity, and reduced income, especially among older, primary care physicians. This strategy also reflects gaps in perception between physicians and administrators regarding involvement, role and trust.
- Sustainable patient behavior change (engagement) that fundamentally shifts provider approaches to patient interactions from “push” to “pull.” This includes bidirectional, frequent contacts focused on developing self-management and caregiver support skills.
Skilled nursing facilities need to consider their role and competitive position within the market healthcare ecosystem; projected demand for services; possible inclusion in at-risk payment models; importance of a data infrastructure and fact-based decision-making; changing referral patterns and the importance of brand equity and the consumer (caregiver) experience as a criterion for longer-term placement.
All healthcare is local. In July 2013, The Institute of Medicine published a seminal report entitled “Variation in Healthcare Spending: Target Decision Making, Not Geography” and found that higher spending in Medicare primarily comes from the “variation in utilization of post-acute care services and, to a lesser extent, by variation in the utilization of acute care services.” The IOM Committee calculated a Medicare fee-for-service spending variation of 42%, a figure consistent with Medicare Advantage data that suggests a variation of 36% to 50%. Post-acute care service providers account for 73% of the total variation in spending, an area of increasing CMS focus.
Payment reform, combined with the application of population health principles, EMR-driven analytics (e.g., predictive, prescriptive) and emerging technologies, will alter the criteria for patient admission, as well as the length of stay. Sicker patients may be discharged earlier from higher cost hospitals to skilled nursing facilities. Potential hospital admissions to rehabilitation and long-term acute care facilities may also be diverted to SNFs. Alternatively, patients previously discharged to SNFs may receive intensive home care services.
Demographics should more than offset regulatory, reimbursement and competitive pressures for SNF providers able to scale high quality efficient care within a well-defined addressable market. The population for those over 65 is forecast to increase from 46.8 million in 2015 to 63.9 million in 2025.
The growth rate is highest for those between ages 75 and 84, which is almost 50%, followed by those ages 65 to 74 (34.8%) and greater than 85 years old (15%). Medicare spending per beneficiary increases from $7,859 for those in the 65-74 age cohort to $12,805 for the 75-84 cohort due to an increase in the number, severity and interaction of co-morbid conditions, and the high cost of end-of-life care.
Provider survival strategies in an at-risk environment also apply to SNF operators who must increasingly consider their role and basis of competitive advantage within a local addressable market. Strategic leadership, combined with tactical execution are required in a period of evolutionary change.
David Gruber, M.D., is Managing Director and Director of Research with the Healthcare Industry Group at global professional services firm Alvarez & Marsal.