New Therapy Payments a ‘Game Changer’ for Skilled Nursing Industry

Changes to the way Medicare reimburses providers of therapy services will change the game for skilled nursing operators, at least according to one industry analyst.

The Resident Classification System, Version I (RCS-I) will replace the current fee-for-service Medicare therapy structure with a model that more closely tracks with larger trends toward value-based services, rewarding providers that take on higher-acuity patients and provide clear progress.

“RCS is a game changer, and the timing is perfect,” Joshua Zenilman, an associate at health care investment bank Cain Brothers & Co., wrote in an analysis released this week. “The SNF industry is currently in a period of transition. But long-term fundamentals are very strong.”

The short-term pain for operators will be adapting to the new payment system, which replaces the current Resource Utilization Group (RUG) structure — though Zenilman notes that the Centers for Medicare & Medicaid Services (CMS) will likely delay full implementation until late in 2019. But he ultimately contends that the opportunity outweighs the initial paperwork and coding headaches to come.

Smart therapy providers, Zenilman predicts, will evolve past simple third-party vendors and come to see themselves more as “post-acute care managers,” offering a wide variety of ancillary services — including dialysis, respiratory care, and psychiatric services — in SNFs.

“The winners of RCS will be the organizations that move away from the antiquated minutes-based approach to care toward a holistic care environment,” he writes. “These will be the facilities that attract the more complex patients, and CMS will reward them accordingly.”

Zenilman’s take echoes Sabra Health Care REIT (Nasdaq: SBRA) CEO Rick Matros, who has long insisted that the future of the skilled nursing industry rests on operators’ ability to care for sicker and sicker residents.

“Providers that can take care of [residents] with the best outcomes, take on the highest acuity patients without concerns about re-hospitalizations, those are going to be the winners,” Matros told SNN last year, when his company was still in the midst of trying to sell the REIT’s merger with Care Capital Properties to shareholders.

By preventing SNFs from simply fattening up on Medicare dollars by providing the greatest number of therapy hours possible, the new scheme will place an outsized influence on results.

“The payment rate for a patient under RCS could be the same regardless of whether the patient receives 10 minutes of therapy or 100,” Zenilman writes. “Ultimately, the goal is to better align SNF therapy with the quality and need of care, stripping away the economic considerations in the process.”

Written by Alex Spanko

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Alex Spanko on Twitter
Alex Spanko
Alex covers the skilled nursing and reverse mortgage industries for Aging Media. Outside of work, he reads nonfiction, yells at Mets games from his couch, and enjoys pretty much any type of whiskey or scotch — often all at once.

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