Replacing Long-Term Care Hospitals with Skilled Nursing Could Save Medicare $4.6B

New research takes aim at the long-term care hospital (LTCH), suggesting that the federal government could save billions if it paid those providers the same way as skilled nursing facilities — or just replaced them with SNFs altogether.

“We find that most LTCH patients would have counterfactually received care at skilled nursing facilities … and that substitution to LTCHs leaves patients unaffected or worse off on all measurable dimensions,” the researchers wrote in their analysis, published as a National Bureau of Economic Research working paper last month.

The team consisted of Liran Einav of Stanford University, Amy Finkelstein of the Massachusetts Institute of Technology, and Neale Mahoney of the University of Chicago, who set out to determine whether or not LTCHs justified the generally higher reimbursements they receive from Medicare: In 2014, for instance, long-term acute care hospitals received $1,400 per day for their services, as compared to $450 for SNFs.

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That gap was of particular concern to the researchers, who determined that four-fifths of all LTCH stays represented a diversion from SNF care, with the remaining one-fifth consisting of patients who normally would have been sent home. But based on their analysis, which analyzed Medicare data from 1998 to 2014, LTCHs — also known as long-term acute care hospitals, or LTACs — didn’t produce statistically significant declines in patient mortality over a 90-day period, nor did they improve the odds that a resident would eventually return home.

“Our empirical estimates suggest that by simply eliminating the administratively-created concept of LTCHs as an institution with its own reimbursement schedule – and reimbursing them instead like SNFs – Medicare could save $4.6 billion per year with no harm to patients,” the researchers conclude.

In general, the NBER team classifies long-term care hospitals as the byproducts of federal reimbursement policy and not an actual medically necessary care setting, and described the Centers for Medicare & Medicaid Services’ (CMS) attempts to close spending loopholes at the facilities as “a regulatory game of whack-a-mole.”

“LTCHs are administrative — not medical — constructs,” the researchers wrote. “They are unique to the U.S. health care system, and, to the best of our knowledge, do not exist in any other country.”

There were more than 400 LTCHs in the United States as of 2014, according to the researchers and a report from the Centers for Disease Control and Prevention (CDC). The vast majority of those, or about 72%, were operated by for-profit companies, with Kindred Healthcare and Select Medical topping the list of providers. Those companies had profit margins between 16% and 25% for their LTCHs, the researchers noted.

Investor interest in LTCHs has declined in recent years, with Sabra Health Care REIT (Nasdaq: SBRA) CEO Rick Matros declaring them a dying asset class earlier this year. Part of that shift away has come from skilled nursing facilities’ efforts to take on higher-acuity patients amid new payment models that emphasize the best care at the lowest cost — a factor that has given SNFs optimism about their prospects under reform.

“The skilled nursing facility isn’t a nursing home,” Matros said this past spring. “It’s more of a step-down unit from an acute care hospital.”

Written by Alex Spanko

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