Partnering with ‘Frenemies’ Can Help SNFs Navigate Medicare Advantage Pressures

Big-picture thinkers in the skilled nursing space have increasingly talked about the need for operators to band together in the face of reimbursement pressures and new payment models — an urge that goes against the competitive nature of the health care industry, particularly in markets saturated with multiple post-acute options.

But according to Plante Moran partner Betsy Rust, providers should think of their fellow operators less as foes and more as “frenemies,” allowing them to forge useful partnerships against the common enemies of shortening lengths of stay, constrained reimbursements, and high staff turnover.

Skilled Nursing News invited Rust on our latest episode of “Rethink: The Future of Skilled Nursing” to discuss a recent benchmarking report from the accounting and advisory firm. While Plante Moran found increases in overall Medicare margins for nursing homes across the country, Rust and her colleagues noted that locating clear information about overall Medicare Advantage rates is much more difficult.

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Here are some excerpts from the wide-ranging conversation; for the full episode, download and subscribe on SoundCloud, iTunes, or Google Play.

If there aren’t any good public Medicare Advantage benchmarking resources for operators, how can they still measure their performance in a given market?

Even though those industry averages aren’t necessarily available for a typical health plan in an individual market, it’s still important for the operator to understand profitability under each of their significant Medicare Advantage plans. And so we would recommend that organizations are taking the time to calculate the profitability by looking at the revenues for a particular Medicare Advantage contract in comparison to the actual expenses of providing that care to plan beneficiaries. And often, that performance will be significantly different than what a provider has under Medicare.

We worked on a project for a group of providers in one state where the health plan was offering to those providers an individual, per-diem, flat rate. And using this data that we collected from those providers to really show them what the profitability was under that health plan’s metrics, we were able to help that group of providers negotiate a better rate. You may not be able to understand what everybody else is doing, but you can use information about your own operations to try to advocate for yourself with those health plans.

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How will PDPM affect Medicaid rates, given that many states base those numbers on Medicare calculations?

That’s a really interesting question, and I don’t have the answer and I don’t anyone has the answer now. But I’m glad to hear it’s on the radar and on the minds of folks … because so many state Medicaid systems rely on acuity measures that are derived from the current RUG [Resource Utilization Group] system or previous versions of RUGs. 

So those states now have to look for new ways to re-tool how they get their information to execute their own reimbursement systems. One of the great fears, I think, is that more and more states are going to look to managed care and to just shift their beneficiaries to managed care, because it’s going to be so burdensome to adopt something else when this RUGs infrastructure isn’t available to them.

What about on the managed Medicare side?

Still uncertain, and I would think a large percentage of health plans did follow Medicare RUGs, but many of those health plans, in conversations that I’ve had with some local health plans here in Michigan, they’re really looking for ways to incorporate additional value-base purchasing mechanisms into their contracts, and are looking to narrow networks. So some providers might be lulled into thinking: “Gee, we haven’t been hit by narrow networks so far; we’re probably not going to have any concerns with access.”

I think some of these health plans have been formulating their plans, and this shift to PDPM is going to be a time where they roll out something different. So I am expecting that the majority of health plans will not shift to PDPM, but will use an alternative methodology.

Many providers have considered starting their own MA plans to take control of their reimbursements. How big do you need to be to succeed in the insurance game?

Some industry experts are saying that you have to be able to have 500 covered lives in order to make a plan work. I’m not so sure you need quite that threshold, but I do think 500 is a good number —  although you might be able to make it work at something less than that. With these insurance opportunities, you’re not going to be able to cover everybody in your facility. Patients will continue to have choice, so you can’t assume if you have 500 beds, for example, that you can make this work, because odds are you’re not going to have more than, let’s say, 30% to 40% of your beneficiary patients enrolled.

A strategy that I think can work is to look to other organizations in your market and to come together to create a plan. Now, there’s a lot of risks with that, because with insurance, there’s a lot of risk around utilization — so you’d want to have like-minded organizations, where you believed their quality and operating practices were commensurate and compatible with yours. But I do think the insurance opportunity can be done in partnership with more than one organization.

Health care is still a business, though — partnering with competitors seems counterintuitive.

Maybe this is one of those situations where we’re talking about frenemies, right? Certain provider organizations may still be competing against one another for patients in a market, but both of them are trying to win a competition against a health plan, let’s say, who’s keeping too much of a revenue stream. So I think there’s opportunities for friendly competitors who are like-minded and both recognize that there’s something to be gained by their partnership, to team up and have success here.

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