The Medicare Modernization Act of 2003 established a Medicare Advantage Coordinated Care Plan intended for individuals with special care needs, including nursing home residents with lengths of stay over 90 days. 

Specifically, to help improve care for these long-term nursing home residents, the new legislation called for the creation of Medicare Advantage Institutional Special Needs Plans (I-SNPs). The initial sponsors of I-SNPs were primarily large insurance companies, such as United Healthcare and Anthem. 

However, nursing homes should become more interested in I-SNPs for two reasons. I-SNPs improve the quality of resident care and can help nursing leaders learn to manage financial risk. 

In December, 2022, there were 223 I-SNPs with 105,878 enrollees, which indicated a 15% increase in enrollees over the previous two years. Now, approximately 8% of the 1.3 million people residing in nursing homes have enrolled in an I-SNP.   

Why should nursing home leaders be interested in I-SNPs?

With the growth of Accountable Care Organizations, Bundled Payment for Care Improvement initiatives, Medicare Advantage Plans (MAPs), and other CMS value-based purchasing plans, nursing homes have continued to experience a decline in fee-for-service (edicare patients and their subsequent revenues. 

According to the National Investment Center for Senior Housing & Care, Medicare revenue mix in nursing homes across the nation declined from 26% to 21.2% from 2012 to 2022, while MAP revenue mix increased from 8% to 10.2%. More importantly, almost 50% of Medicare beneficiaries are currently enrolled in MAPs, which will further decrease the proportion of traditional Medicare patients in nursing homes while increasing the number of MAP patients. 

Overall, as continued growth in MAPs is anticipated, the financial management of nursing homes will continue to be more challenging through these ongoing shifts in revenue mix.

Growth of MAPs and ACOs will continue to expand value-based purchasing as well and will provide an opportunity for nursing homes to take upside and downside risk while caring for and managing patients. Many ACOs are interested in risk arrangements with nursing homes. Most nursing homes, however, are not prepared to manage financial risk, and this kind of unpreparedness can affect their reimbursement amounts.  

Nursing homes strive to achieve quality measures for the benefit of short and long-stay residents. However, they are not accustomed to enjoying direct monetary rewards for achieving certain quality measures for residents. In addition, nursing homes are not financially incentivized to safely manage changes in patient acuity to avoid emergency room visits and hospitalizations. Nursing home leaders will need to learn to manage these quality factors to successfully participate in value-based purchasing. 

Value-based purchasing is a trend that will continue to accelerate — we are not going back to Medicare FFS or “the way things were.” Value-based purchasing and the management of financial risk is here to stay. CMS will off-load its financial risk to nursing homes, possibly as early as 2030.

I-SNPs allow nursing homes to become involved in values-based purchasing and provide nursing homes with the opportunity to receive per member per month (PMPM) payments for resident enrollees. The PMPM revenues fund more services, such as those of advanced practice practitioners (APPs), who can improve the quality of resident care. The PMPM payments provide the nursing home with the financial incentives to manage utilization, primarily unnecessary hospitalizations, so that the cost of care is less than the PMPM payment.

What is the process to evaluate I-SNPs?

Nursing homes that are interested in I-SNPs must first decide if they want to create and own an I-SNP or contract with one of the many I-SNPs that have already been established. In order to own an I-SNP, nursing homes should be part of a larger health system that can accommodate the risk and has the capital to meet their state’s insurance financial reserve requirements. For most nursing homes, administering a health plan is technically complex and carries substantial financial risk. The better option is to contract with an I-SNP that has already been established. 

There are a number of I-SNPs with which nursing homes can contract as a provider. Nursing homes should evaluate an I-SNP’s experience, number of other nursing homes in the network, financial stability, number of enrollees, rate of growth and reputation. After considering these criteria, nursing homes can negotiate a provider agreement. It’s best to evaluate a few I-SNPs to enhance your negotiating position and to partner with the one with which you are most comfortable.

Provider agreements, like any other agreement, are established to identify the I-SNP’s and the provider’s respective responsibilities and obligations. The I-SNP will agree to provide a payment amount to the nursing home that can be a PMPM or FFS payment. It is important to note that the I-SNP will only be successful if hospitalizations are effectively managed, so the nursing home should consider the impact of reduced skilled utilization. The nursing home should benefit from the gain share of reduced hospitalizations and should ensure access to utilization data from the I-SNP. 

PMPM payments typically increase during the first year as residents’ medical status and risks are better understood and documented. The I-SNP pays the nursing home at least 85% of the payments they receive from the CMS, referred to as the medical loss ratio (MLR). The MLR includes the cost of care, quality incentive payments, and other incentives. The PMPM is not necessarily limited to paying 85% of the MLR; a higher payment can be negotiated, recognizing, however, that administrative and overhead costs of the ISNP are typically 10%.

Nursing homes agree to provide quality care to each resident through the use of APPs and other services that they typically provide in return for the PMPM. Some I-SNPs may temporarily supplement the PMPM payment if the nursing home is able to safely care for a resident whose medical status has changed rather than admitting the resident to a hospital. When an enrolled resident is admitted to the hospital, the hospital costs are absorbed through the PMPM. Also, it should be noted that Medicare Part B expenses incurred, for example, through therapies, are paid for through the PMPM. If the nursing home contracts with a therapy company to provide resident services, it is advisable to inform them when negotiating an ISNP agreement. 

How are I-SNPs introduced to residents and families?

Nursing home residents and their families are educated about the opportunity and benefits of I-SNPs by the I-SNP team. A core competency of the I-SNP is the sales and marketing process. Nursing home residents who agree to I-SNP coverage relinquish their Medicare FFS or MAP coverages. The nursing home foregoes any Part A or B FFS revenues. Residents who enroll in an I-SNP maintain their Medicaid coverage. 

Usually, 150-200 resident enrollees in a nursing home or across a few geographically proximate nursing homes are needed for the I-SNP to make financial sense. These numbers are usually needed to achieve some economies of scale. Standalone nursing homes may want to create a federation or consortium of local nursing homes before evaluating I-SNPs. The I-SNP will view opportunities as compelling when there is a critical mass.

In an environment that will increasingly require providers to manage financial risk, I-SNPs is a program that will help nursing homes manage financial risk in a value-based purchasing environment, while providing great care to residents. 

John Capasso is the Executive Advisor, Senior Care for Health Dimensions Group.

The opinions expressed in McKnight’s Long-Term Care News guest submissions are the author’s and are not necessarily those of McKnight’s Long-Term Care News or its editors.