Skilled nursing operators would be remiss to forget about the opportunities the Patient Driven Payment Model presents during the ongoing public health emergency, according to a new industry report. Most concerning has been the largest annual decline in cash flow observed, researchers said.
“There’s a lot of distraction, a lot of disruption that’s impacting skilled nursing operators. We don’t want to minimize that but we also don’t want organizations to take their eye off the ball,” Cory Rutledge, principal and head of CliftonLarsonAllen’s senior living practice, told McKnight’s Long-Term Care News on Wednesday.
The PDPM reminder was among several top industry trends identified in CLA’s 35th annual Skilled Nursing Facility Cost Comparison and Industry Trends report released Thursday.
The analysis noted that though PDPM dominated 2019, it now seems like a distant memory for some operators following the onset of the coronavirus pandemic. Though many operators have invested in and successfully adjusted to the new model, others have struggled.
By not stressing the importance of PDPM, operators could miss out on clinical and coding opportunities for appropriate reimbursement.
“To state it plainly, operators cannot afford to leave PDPM reimbursement on the table,” the report warned.
Rutledge explained that CLA’s point is “PDPM is still important and to understand that payment model and optimize that to the best of one’s ability is still very important.”
Cash burn up, occupancy down
Taking advantage of PDPM and its reimbursement opportunities could come in handy based on recent cash burn trends due to the pandemic.
The 34-page analysis revealed that operating margins for SNFs hovered around zero for the third year in a row, meaning that roughly half of facilities in the country are not operating at a profitable level; it also puts into question their long-term viability, explained Rutledge.
Additionally, the report found a significant decline in earnings before interest, depreciation, and amortization (EBIDA), which provides a rough measurement of cash-flow for skilled nursing operators.
“That metric has been declining year-over-year, but this year it’s been the largest single-year decline that we’ve seen in the industry. It went from 10% to 9.4%, so a 60 basis point decrease, which is pretty substantial,” Rutledge said. “That is probably the trend that’s maybe most concerning.”
On top of that occupancy has dropped from 84.6% in 2019 to just under 74% as of August 2020, according to the analysis. Rutledge noted the “decline is substantial and something that’s going to be a huge challenge for organizations going forward.” Providers have also reported expenses increases ranging between 200% to 2,000% during the pandemic.
“[Coronavirus-related] activities have caused a significant cash burn in the skilled nursing environment,” Rutledge explained. “Not only are costs going up related to COVID but occupancy is going down pretty significantly.”
Reasons for optimism
Rutledge said there are some reasons for operators to be encouraged about the future. Specifically, he noted that telehealth could be an opportunity for SNFs “to look at themselves as more than just a skilled nursing facility.”
He explained that operators typically look at their business in two distinct components: short-term rehabilitation and long-stay. One of the opportunities within long-stay to create different revenue streams is telehealth.
“As providers move forward and they’re sort of settling into whatever this new normal is that they’re currently experiencing, I think it’s important for them to really understand the full economic impact of the residents that are within their facility and figure ways to participate in those revenue streams, again telehealth being one and other ancillary business being the other opportunities for them to consider,” Rutledge said.
The analysis was created using more than 6,000 public cost reports released by the Centers for Medicare & Medicaid Services. CLA noted that typically its annual reports use about 12,000 reports for the annual publication but the number was lower number this year because CMS granted pandemic-related filing extensions.
The full CLA report can be found here.