Opportunity and Crisis: Skilled Nursing Leaders Make Their Top Predictions for 2019

In the lead-up to Christmas and New Year’s, the Skilled Nursing News team took a shot at predicting what 2019 will have in store for the industry over the coming 12 months. Now that the ball has dropped and we’re all back at our desks, we thought it was the perfect time to ask a wide cross-section of the industry — therapy providers, real estate brokers, operators, and analysts — for their outlooks on the upcoming year.

Here are their answers, straight from the people who will lead the industry into the brave new future of the Patient-Driven Payment Model (PDPM), Medicare Advantage, and another potential wave of upheaval.

Chad Elliott, Managing Director, Lancaster Pollard

“Optimism is building in the SNF sector for those that are in it for the long haul. REITs in particular, somewhat surprisingly, are presenting a positive outlook that tailwinds are carrying the sector into the new year. Headwinds are certainly not gone — operators will continue to focus on balancing staffing costs and shortages, stabilizing lengths of stay (to combat Medicare Advantage trends), and driving occupancy.

“However, those headwinds are juxtaposed with a shifting perspective on the role of SNFs in the reduction of national healthcare costs, that includes the implementation of PDPM, leveraging SNF cost advantages relative to alternatives, as well as nearing the end of portfolio restructurings that are rightsizing the landlord/tenant financial relationship. PDPM will improve top and bottom line performance for the quality operators and push less-sophisticated operators to exit, as that is the optimal outcome for both. Thus, smaller portfolio sale opportunities will outpace large ones in 2019. Furthermore, as PDPM is implemented, large public and institutional players, with their portfolio restructuring and divestiture efforts complete, will likely become meaningful buyers again. We expect the ‘hypothetical, same’ asset or portfolio to trade better in 2019 than it would have in 2018, assuming it is properly positioned to a competitive buyer universe.”

Martha Schram, President and CEO, Aegis Therapies

“Opportunity is greater than at any time in the recent past to be rewarded for collaborative, high-quality care and outcomes. It will be critical to carefully assess and leverage clinical competencies and ensure that new competencies are acquired, particularly in the ability to accurately characterize the patients/residents in their care. There are still a lot of myths circulating about PDPM, so identifying a trusted resource and ‘fact-checking’ as providers prepare and train for the new reimbursement model will be important. To the degree possible, and in accordance with contracts they may already have in place, providers can practice the new requirements with their managed care population from a therapy perspective — and, frankly, from a nursing standpoint.

“We will see greater penetration of managed Medicare plans and the pressure that will come for shorter LOS and efficient delivery of service. Understanding that providers are being compared to themselves as well as their peers, the attention and vigilance to readmissions to the hospital and expanding the team that can influence reducing avoidable readmissions will be very important.

“For successful providers, the strength, depth, and breadth of rehabilitation programming will have high priority as it impacts their success with PDPM, a growing managed care environment, and in managing their success in VBP.”

Mark Besch, Chief Clinical Officer, Aegis Therapies

“Medicare Advantage plans will continue to expand in terms of lives covered, and providers should take note — these plans tend to pay less than fee-for-service Medicare and actively manage LOS, which FFS Medicare does not. So it’s effectively a double hit: lower daily rates and shorter stays.

“The temptation may be to focus on PDPM’s impact, but with implementation not until October 2019, the actual period of impact is only three months of 2019. Successful skilled nursing providers will be expending significant effort in preparing — examining skillsets of nurse assessment coordinators; examining systems and processes to ensure more complete coding; assessing the readiness of their IT systems and advocating to vendors for needed changes; and making decisions regarding therapy service delivery and resources.

“We will see an increase of new insurance plans being formed — special needs programs — that will function much like more traditional managed care plans.”

Ruth Katz, Senior Vice President of Public Policy and Advocacy, LeadingAge

“We anticipate four major areas of focus in the coming year. First, nursing homes serving primarily long-stay residents covered by Medicaid will continue to face challenges. As noted in the late 2018 analysis by CliftonLarsonAllen, lower occupancy, a ‘less desirable payor mix,’ increased regulatory scrutiny, and transition to a new Medicare payment system may result in some SNFs’ demise; others may find alternative solutions such as remaking themselves into post-acute care providers.

“Second, workforce challenges won’t dissipate; indeed, as the number of older adults over 65 grows and the supply of caregivers at all levels in aging services tightens, we envision heightened calls for fresh thinking from policymakers and their constituents. We will push for support of the Nursing Home Workforce Quality Act and for meaningful immigration reform, as well as add workforce-related resources in our Center for Workforce Solutions to help members in every way possible.

“Third, nursing home regulations will continue to garner a fair share of our attention as we help members navigate change while continuing to deliver person-centered, high-quality, mission-driven care. We know that the freeze on the health inspection portion of Five-Star ratings and the moratorium on eight F-tags as part of the second phase of the Requirements of Participation (RoPs) will be lifted. At the same time that our members adjust to those shifts, they’ll be preparing to implement RoPs Phase 3 in November 2019. And, of course, we’ll keep an eye on CMS’ determination of market basket updates and the impact on reimbursements, as well as guidance on PDPM implementation. We will also monitor changes to the Affordable Care Act, including the provisions impacting to older adults.

“Finally, Medicare Advantage will continue to grow in popularity. Today, more than a third of Medicare beneficiaries select one of these managed care plans. It is essential that SNFs and other aging services providers be given the resources they need to carry out their role in these networks. We will continue to develop tools and resources, provide technical assistance, and information to LeadingAge members through our Center for Managed Care Solutions & Innovations, launched in late 2018.”

Marc Zimmet, President, Zimmet Healthcare Services Group

“The ‘financial distress’ SNFs experienced in 2018 was sometimes self-inflicted, but more often the result of three highly variable factors that are unevenly distributed among markets. They include adequacy of state Medicaid funding, Medicare Advantage penetration, and alternative payment model (APM) participation. I expect disparities in this ‘Tale of 50 States’ to widen in 2019.

“With growing awareness that Medicaid cuts have hit bone, I do not expect many surprises here in 2019, for better or worse.

“MA payments per SNF episode are roughly half that of comparable fee-for-service admissions. But penetration varies significantly across markets. My clients are targeting several states for expansion that, coincidentally, have among the lowest MA ratios (11%-25%) — a major advantage over states where MA represents more than half the eligible population. The expansion of allowable benefits offered by MA plans will likely accelerate enrollment growth — but at different rates per region.

“APMs (BPCI Advanced, ACOs) control spending by minimizing or bypassing) SNF coverage. Markets saturated with APM participants are succumbing to fewer admissions and shorter stays (translation – lower occupancy levels). Established players are gaining traction, but neighboring areas may remain unaffected.

“While these challenges grow, many markets will end 2019 unscathed by the ‘slings and arrows’ of health care reform; we won’t hear much about them. Operators already facing these pressures can expect further erosion of FFS revenue unless they gain market share.

“Regarding PDPM, operators and contract therapy companies will spend much of 2019 adjusting their approach to care management, but the system’s financial impact does not take effect until the fourth quarter. The first months of billing will be misleading, because the transition methodology bases initial PDPM scores on the current condition of many residents well into their benefit periods (e.g. day 30) on October 1 — so facilities will not be credited with drivers present upon admission that have since resolved or discontinued (e.g. IV medications).

“The only certainty is that 2019 will be an interesting year for SNF stakeholders.”

Isaac Dole, Founder and CEO, Birchwood Healthcare Partners

“I think in 2019, we will continue to see states apply more scrutiny to their buyer approval process (Changes of Ownership, or CHOWs) given all of the distress that has come out of the industry in the last one to two years in the form of bankruptcies and receiverships; this continues to occur.

“This scrutiny could expand beyond clinical track record and objective background checks to areas like financial wherewithal and character, all of which reduce prospective buyer pools. This could lower pricing on one hand, but could be somewhat offset by the steady flow of new entrants into the industry on the other. While many significant asset management initiatives — transitions, sales, receiverships, bankruptcies — were announced in late 2017 and throughout 2018, we will likely continue to see more of it throughout 2019 as larger operators determine their optimal size and footprint.

“The industry is clearly starting to get a lot more attention — in addition to new capital entrants to the space, we have started to see many new vendors to the space throughout 2018 as well. We obviously expect to see that continue to accelerate.”

Josh Pickus, CEO, Optima Healthcare Solutions

“Both therapy providers and skilled nursing facilities are going to be more data-driven in their approach, and start adopting technologies that can provide visibility into the new types of metrics that will prevail as we move toward value-based payments. For example, instead of focusing on treatment minutes, there’s going to be a need for metrics that provide insight into how much it will cost to improve outcomes for patients by a single point on the PDPM functional scale, or how much it will cost from a labor perspective to achieve functional improvements across a patient population.

“Additionally, with growing reimbursement pressure, historically low census levels and competition from other care settings, therapy providers for skilled nursing facilities will also be taking a hard look at their business models to ensure they can continue to maintain financial results. We’ll likely see many start to develop specialized services over the coming year to differentiate themselves and enable their SNF customers to take on more medically complex patients under PDPM. We’ll also see an increase in the trend toward business diversification as more providers expand into home health and outpatient therapy to drive new sources of revenue.”

Lisa McCracken, Director of Senior Living Research, Ziegler

“With a number of new Medicare Advantage plans on the market for 2019, it is anticipated that the percentage of seniors enrolled in MA plans will grow by double digits. I think that you are going to see an increasing number of senior living providers explore Medicare Special Needs Plans (SNPs). Providers want to be in the driver’s seat and will look to create meaningful networks with peer organizations. There is indeed risk involved in these models and they require scale, so they are not an option for everyone, but more sophisticated groups will very likely enter this space.

“Providers of skilled nursing services will continue to need to be nimble throughout 2019. They will need to reinvest in dated facilities to remain relevant and aligned with customer preferences. At the same time, providers will need to determine the appropriate allocation of skilled nursing beds compared to other offerings. Some providers are offsetting skilled nursing with higher-acuity assisted living services or are supplementing with intensive home care or home health services. Bottom line: The skilled nursing environment can be very local, so providers need to stay on top of their marketplace and be able to adjust accordingly.”

Erin Shvetzoff Hennessey, CEO, Health Dimensions Group

“2019 will be a defining year for many providers with occupancy, labor, and reimbursement challenges creating opportunities for the creative and nimble — or crisis for those who stand idle. While recent data has shown a slight uptick in skilled nursing facility census, the general trend has been downward, resulting from a move toward lower cost care venues and shorter lengths of stay. To make up for this revenue, nimble and creative providers will find new ways to harness their knowledge and resources to provide care in other ways and places through home- and community-based services.

“Labor challenges continue to worsen and successful providers will find new ways to meet resident medical and psychosocial needs through technology, centralization of some business functions, and innovative staffing models to recruit and retain hands-on caregivers who can never be centralized or replaced. The last quarter of 2019 will bring PDPM, an entirely new payment model that will not only require operational process changes, but strategic rethinking and organization-wide culture change. Other payors such as Medicare Advantage and Medicaid may eventually align with PDPM, but will likely do so on different timeframes, placing a further premium on provider nimbleness and training. In short, 2019 will be a year of big change for all providers, and unfortunately crisis for those who cannot change fast enough.”

Maggie Flynn contributed reporting to this story.