Genesis: Medicare Advantage Provides Blueprint for New Payment Model

As the skilled nursing industry continues to digest the effects of the new Medicare proposed payment system, one CEO says that Medicare Advantage can provide a path forward.

The new Patient-Driven Payment Model (PDPM) isn’t all that different from the way managed Medicare plans expect operators to provide services and bill for their time, Genesis Healthcare (NYSE: GEN) CEO George Hager said on the company’s first-quarter earnings call Thursday morning.

“The operational changes that we would need to make under this new system have already been in place for some time with managed care and other value-based programs,” Hager said in response to analyst questions about the outlook for PDPM.


Those changes include an increased emphasis on quality and a strategic pivot away from piling on as many billing hours as possible — two factors that Medicare Advantage plans have generally discouraged.

“From a care-delivery process, [PDPM] aligns with our initiatives that have been in place for some period in how we operationalize … therapy to the managed patient as required by the payor,” Hager said.

The preliminary reviews for the new system have largely been positive, with Hager telling SNN last week that the model was “a positive for the industry” and Ensign Group (Nasdaq: ENSG) CEO Christopher Christensen calling it a step toward “a predictable and sustainable reimbursement system” designed with industry concerns in mind.


Hager expanded on those thoughts during an earnings call that saw Genesis report a net loss of $68.5 million for the first quarter of 2018, as compared to a $50.8 million loss the same time last year.

The CEO characterized the plan as a slimmed-down version of the Resident Classification System, Version I (RCS-I) model that was initially set to replace the existing Resident Utilization Group (RUG) system —  with fewer paperwork burdens and a more efficient care model for therapy providers.

Still, as with other leaders, Hager cautioned that it’s still premature to comment fully on the plan, adding that Genesis is currently working with provider groups to develop a response to the Centers for Medicare & Medicaid Services (CMS) before the June 26 deadline.

“As a result, it is much too early to provide our detailed comments and assessment of the PDPM, but we continue to be encouraged by certain aspects of the proposal,” he said.

Genesis’s rehab arm is also in the process of reaching out to its clients to start developing new contracts that will reflect the changes.

“We think there are significant opportunities to reduce cost, preserve margin, but also provide a great opportunity to more effectively manage costs for our third-party customers, and that cost efficiency will also pass through into our own centers as well,” he said.

Smaller landlord push

The Kennett Square, Pa.-based provider is on track to sell 37 properties by July, including the planned divestiture of all 24 Genesis facilities currently in Texas. The remaining 13 consist of older assets located in core markets but that “were not core to our strategy,” according to Hager.

“We will continue to thoughtfully evaluate additional opportunities to de-lever and focus on our core by shedding underperforming assets or exiting non-core markets with insufficient density to compete,” he said.

Genesis will place a particular focus on teaming with smaller landlords in an attempt to land favorable leases, while also potentially buying back certain leased properties.

“I think the smaller landlords have seen what the larger landlords have done in supporting the industry and reflecting the current level of cash flow that the industry can provide, and so we are seeing a good response,” Hager said.

Stormy weather

Hager and chief financial officer Tom DiVittorio largely blamed the lackluster financial stats on a cold winter in the Northeast — which boosted utility bills — as well as an intense flu season that led to suspended admissions at 16 of its skilled nursing facilities.

But the pair tried to put a positive spin on some of the other metrics, noting that the gap between wage costs and reimbursement rates fell to its narrowest point since the second quarter of 2017 — though staffing expenses still outweighed the money coming in — and the company saw some improvements in skilled nursing lengths of stay.

“We do see things approaching a bottom,” Hager said. “We are very encouraged by what we’re seeing and look forward to returning to growth in the back half of 2018.”

Genesis stock fell 1.55% in Thursday’s trading, dropping by about three cents per share to close at $1.59.

Written by Alex Spanko

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