Skilled Nursing Operators Fighting for Share of Shrinking Medicare Pool

The number of skilled nursing stays among Medicare recipients dropped 15% over the last several years — but not necessarily for the reason many in the industry might believe.

Instead of lower-cost options like home health cutting into demand for nursing home services, the post-acute sector in general is seeing declines amid an overall drop in Medicare-related hospitalizations, according to a new report from consultancy Avalere Health.

“When you look historically, as we did, on a national scale across all conditions and all markets, that substitution effect is just not playing out,” Avalere vice president Fred Bentley told Skilled Nursing News.

The Washington, D.C.-based firm looked at Medicare fee-for-service (FFS) claims between 2009 and 2016 and found that SNF usage declined each year. Back at the end of the last decade, there were 1,808 SNF days per 1,000 FFS beneficiaries; seven years later, that number had dropped to 1,539 per 1,000, a dip of 15%.

But over the same period, Avalere found no material differences between SNF and home health usage, indicating that post-acute providers are simply winning the same proportional battle for a smaller and smaller pool of potential patients. That’s because the Centers for Medicare & Medicaid Services (CMS) has cracked down on inpatient hospitalizations, Bentley said, resulting in hospitals increasingly preferring outpatient observation stays instead.

Under traditional fee-for-service Medicare, patients must spend three days in the hospital on an inpatient basis in order to receive subsequent SNF coverage. The rise of observation stays has been controversial, as patients are sometimes unaware of the distinction and its effect on future post-acute benefits; unlike an admission, observation stays don’t count toward the three-day rule.

Regardless of the implications, the trend has been steady: Discharges from inpatient hospital stays declined 17% between 2009 and 2016, according to Avalere’s research. In addition to the rise of observation stays, Bentley pointed to better preventative medicine and the migration of certain surgeries from the inpatient to the outpatient setting as reasons for the drops.

Length-of-stay pressures have also frequently been cited as issues for skilled nursing providers, as CMS seeks to decrease unnecessary Medicare spending. But that trend is somewhat more nuanced.

“The data does not necessarily bear that out,” Bentley said. “Average length of stay in SNFs has remained largely unchanged for Medicare fee-for-service patients.”

Medicare Advantage on the horizon

However, Bentley emphasized that Avalere’s conclusions rest on overall nationwide data for Medicare fee-for-service residents. Among managed Medicare plans, those trends may be different — particularly given Medicare Advantage’s greater emphasis on savings, which many predict will push patients away from SNFs and toward cheaper home health options.

“We do see in the MA population, there is that substitution,” Bentley said. “There is tighter management on length of stay. Reimbursements are more tightly managed.”

Penetration of Medicare Advantage plans currently sits at around 33%, but experts who spoke at the National Investment Center for Seniors Housing & Care (NIC) Spring Investment Forum last week — including Avalere CEO Dan Mendelson — said that number will rise quickly over the coming years.

Location also plays a role in the trends. In areas where accountable care organizations (ACOs) have taken hold, cost-sharing pressures are indeed producing the feared care substitutions. The same is true in the regions where the Comprehensive Care for Joint Replacement (CJR) bundled payment model remains in effect, Bentley said; though CMS announced a pruning of that program last year, it’s still operating in 34 markets.

“For that condition, when we look at the data, there is evidence that hospitals that are now in CJR are substituting home health for SNF,” he said. “But it’s isolated.”

‘Tsunami’ far out at sea

Like many others in the industry, Avalere and Bentley weighed in on the approaching ‘silver tsunami’ — the long-awaited demographic wave of aging baby boomers that’s expected to provide relief to other SNF pressures through sheer volume alone.

Omega Healthcare Investors, Inc. (NYSE: OHI), a real estate investment trust (REIT) with considerable holdings in the skilled nursing space — and which also provided funding for Avalere’s study — predicted that the start of the wave will begin to be felt in 2019. But Bentley was more conservative in his estimates, saying the data shows that the likelihood of skilled nursing usage tends to ramp up for individuals around age 75.

The oldest crop of baby boomers, those born in 1946, won’t reach that age until 2021 — and even then, Bentley noted, the effect won’t be like simply flicking a switch and watching the residents immediately begin flowing in.

While Bentley said he remains optimistic about the benefits of the coming wave, even amid changing payment models, providers and investors can’t be complacent given the “glacial” pace of the incoming demographic wave.

“You can’t assume seven, eight years out that Medicare’s going to look like it does now,” he said.

Written by Alex Spanko