No Room for Error as Providers Update Rehab Contracts Under PDPM

When sitting down at the negotiating table, rehabilitation companies can often have an edge over the skilled nursing facilities where they provide services. This is especially true as providers take stock of their costs and care models in preparation for the new Medicare payment system taking effect next year.

But that doesn’t mean that SNFs are helpless as they go into contract negotiations with their third-party therapy providers.

“The first question I think [SNFs should be asking] is something along the lines of: How are you viewing your therapy utilization under the PDPM, and how are you renegotiating contracts with your other customers?” Cory Rutledge, managing principal and senior living leader at the accounting firm CliftonLarsonAllen, told Skilled Nursing News.


Rehab providers have bigger picture

At LeadingAge’s annual conference and expo in Philadelphia in October, Rutledge noted that rehab providers will be coming to the negotiating table soon, armed with more data than SNFs will – including analysis of both the current Resource Utilization Group (RUG) system and the incoming Patient-Driven Payment Model (PDPM).

“The benefit that third-party therapy providers have is they have more than one customer, right?” he explained to SNN. “Particularly national players. They’re serving thousands of skilled nursing providers, so they know their experience. They know all their data. They know all their RUG rates, they know how much they’re getting paid. They know how much the SNF is getting paid.”


SNFs, by contrast, generally know their own data: How much they receive from Medicare, their individual Resource Utilization Group (RUG) rates, and — ideally — how much they’re paying the therapy company. But they have no context for that information, Rutledge said.

At LeadingAge, he added that per-minute rehab contracts will “probably not make sense under PDPM,” which makes it all the more imperative for SNFs to start re-examining them. For reference, CLA works with more than 1,000 individual SNFs, the majority of which have an outsourced third-party therapy contract, Rutledge said. And most of the contracts that he sees are per-minute contracts.

The three primary types of rehab contracts are per-minute, per-diem, and a model based on the percentage of the case mix, Consonus Rehab president Guy Cowart told SNN.  The Milwaukie, Ore.-based Consonus provides rehab services to about 80 skilled nursing customers, mainly on the West Coast, but it has only one customer on a per-minute therapy contract, which covers seven buildings, Cowart said. The rest operate under a per-diem structure.

And though he expects to see new models come out of the transition to PDPM, Cowart doesn’t think Consonus will drastically change its approach.

“We fully expect to stay with the per-diem model,” he told SNN. “We feel like most of our customers prefer that; it makes it easier for our customers to know their costs and budget on a per-diem basis. We consistently heard that’s what our customers would prefer.”

What SNFs can do

SNFs can get themselves on a better footing in renegotiating their rehab contracts by making sure they understand all the ins and outs of their current contract, Rutledge said.

“To take that a step further, they’re going to want to understand the typical type of resident they’re seeing,” he explained. “So look at your top five RUG levels and understand: What is the therapy content of that RUG level? How much are you earning on the therapy component of that RUG level today? And how much are you paying your therapy provider for that? Essentially what you can get to is your own profitability on therapy.”

And before SNFs sign any new contract for rehab, they need to make sure they understand what the proposed terms are, he added.

For their part, the rehabilitation companies will have to find their value in the new reimbursement system, Cowart said. They have to balance being a potential cost center with the fact that patients admitted for rehab will expect it as part of the patient experience. It’s an argument similar to that of Aegis Therapies CEO Martha Schram, who told SNN in November that articulating the value of rehab is crucial in preparing for PDPM.

Consonus is still analyzing the impact of group and concurrent therapy on its cost of services, and this could provide some savings. But this will vary facility to facility based on their Medicare census, he added.

“We’re going to have limited ability to lower our cost to facilities that have a low Medicare census,” Cowart explained. “In facilities where we have the opportunity to do the maximum of group and concurrent, there we will have the ability to substantially lower our costs.”

Customers want to know if Consonus has information on how PDPM will impact their overall financial situation, Cowart noted. But it’s not clear yet what the final impact of the new model will be for most SNFs.

And the new model will change reimbursement only for Medicare patients, Rutledge noted.

“The jury’s still out on how this will affect Medicare Advantage, otherwise known as managed care contracts,” he told SNN. “Some of those are RUG-based contracts. The challenge from the provider perspective is if I have two residents, one Medicare and the other Medicare Advantage, if the payment mechanisms are different, the therapy provider might not treat them the exact same.”

CLA has been recommending that organizations take a sample of 20 individuals, review the therapy minutes they receive, and understand the therapy component of the reimbursement for those individuals, Rutledge said. He also recommended that SNFs get a handle on how therapy providers plan to rehabilitate patients with a SNF’s most common health conditions, and enable them to reach better outcomes.

“This is a really interesting opportunity for skilled nursing providers,” he told SNN. “My viewpoint is that some will do it really well, and the ones that aren’t thoughtful about it could end up in a really tough spot. We just did a story where the median operating margin for SNFs is zero. The point is, there isn’t room for error.”

Written by Maggie Flynn

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