Rehab Business Model Will Change ‘Substantially’ Under PDPM

Therapy companies that provide services to skilled nursing patients must radically change their business models if the Centers for Medicare & Medicaid Services’ (CMS) proposed Patient Driven Payment Model (PDPM) is finalized and takes effect next year.

That doesn’t mean that rehabilitation services for skilled nursing facilities will go away. But under PDPM, providers will no longer have an incentive to chase therapy minutes — and according to Brad Schopp of Integra Realty Resources, they’re already scrambling to adapt.

“I think there’s going to be a fairly significant shift,” Schopp, who is managing director of Integra’s health care and senior housing practice, told Skilled Nursing News. “I’ve talked with just a couple of owner-operators who work in the transitional rehab care environment… and one of them said under their current model, they do 90% therapy-type residents and only 10% medically complex ones. He estimates a 60-40 or 50-50 split [under PDPM]. That’s a significant decrease in therapy.”


PDPM, which was announced by CMS in late April, is intended to change the current skilled nursing reimbursement system in order to treat the needs of the whole patient, according to the agency’s announcement at the time. And radically changing reimbursement incentives is one of the ways CMS hopes to accomplish that goal.

Early industry applause

The new model received a surprisingly warm welcome from the skilled nursing industry for a CMS dictate, with CEOs lauding the government’s willingness to listen to the business community’s concerns about the previous proposed payment model, the Resident Classification System, Version I (RCS-I). In general, leaders from both providers and real estate investment trusts (REITs) have characterized PDPM as a model that reduces paperwork burdens and regulatory risks while generally avoiding major cuts to operators.


But the providers have also acknowledged that changes will be necessary — with Genesis Healthcare (NYSE: GEN) CEO George Hager saying that his company is already working to develop new contracts with its third-party therapy recipients — to weather the major reimbursement shift.

“Therapy companies are going to have to change their business models quite substantially under PDPM,” Optima Healthcare Solutions CEO Josh Pickus told SNN. “The industry has had a relatively positive reaction to PDPM mostly because it has some improvements relative to the prior proposed rule, RCS-I. But the important takeaway, from our standpoint, is that the fundamental change that frightened everyone about RCS-1 is exactly the same in PDPM — which is that minutes as a driver of reimbursement are eliminated.”

The new payment model does make it clear that therapy can’t just be ignored because it’s not getting reimbursed by the minute, said Pickus, whose company designs and develops clinical management software. This was less clear in RCS-1, and PDPM does represent an improvement on that front.

But Schopp predicts a significant decrease in therapy, because for many patients, “it doesn’t make sense.” A revenue decrease seems inevitable for therapy companies, though it’s not clear how much that will be, he said.

The rise of Medicare Advantage may provide a bellwether, though. In the current managed care population, a fully licensed therapist isn’t used for every single resident, as therapy aides can and do mitigate therapy costs, Schopp said. Speaking on Genesis’s first-quarter earnings call early this month, Hager pointed out that some of the steps Genesis has taken to adapt to the rise of managed care will serve the company well under the new structure.

To thrive in the new landscape, therapy companies will have to deliver spectacular outcomes in smaller and smaller increments of time, Pickus said. That’s how SNFs will select their contract therapy companies going forward, making it essential for the companies to have the data showing their capabilities.

“What’s actually going to get valued is if you take a particular patient with a particular condition,” he elaborated. “There are going to be these specific case situations, and what it’s going to boil down to is how much improvement can you drive over X days with Y dollars.”

Written by Maggie Flynn

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