Genesis’s Hager: Medicaid Represents a Much Larger Threat to SNFs Than PDPM

The skilled nursing industry has — with good reason — thrown much of its energy and focus onto the challenges of the Medicare reimbursement overhaul taking effect on October 1 of this year. But according to one prominent industry leader, the challenges of Medicaid pose a far greater threat to providers — particularly as the gap between costs and reimbursement continues to grow.

“By a large, large difference, the Medicaid issue is the much bigger exposure for this industry,” Genesis HealthCare (NYSE: GEN) CEO George Hager said Thursday at the Skilled Nursing News Summit in Chicago. “I know everyone focuses on the Medicare Part A population … the reality is the skilled census has never gone above 20% of total census. Eighty percent of the census is long-term care.”

Private-pay patients, meanwhile, have all but disappeared from the SNF world as assisted living, continuing care retirement communities (CCRCs), and home and community-based services (HCBS) grow, he noted.

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That increases the struggle for providers to stay afloat financially, given the prominence of Medicaid in the skilled nursing revenue stream. A study from the accounting and advisory firm Plante Moran showed Medicaid as by far the most prominent payer among SNFs, though exact levels vary from state to state. Medicare, by contrast, was consistently the smallest cash source.

That’s translated to significant challenges for operators. Medicaid struggles have made headlines in recent months in states all over the U.S. with a wave of closures hitting Illinois, Massachusetts, South Dakota, and Wisconsin, to name just a few. Providers in all of those states have pointed the finger at the significant gap between Medicaid reimbursement and the cost of caring for Medicaid patients — a gulf that Hager cited in the panel.

“It’s critically important that 70% of your patients are funded through the state medical assistance programs,” her said. “Those programs need to keep pace with the costs. And in many states, that gap between operating cost and reimbursement continues to grow.”

But because the general increase in the acuity of SNF residents isn’t confined to long-term care patients, providers can’t ignore the Patient-Driven Payment Model (PDPM) — particularly since it shifts incentives toward capturing the acuity of existing patient population. The trouble is that Medicare patients are becoming an increasingly scarce resource, Brian Cloch, the chairman of attunedCare noted.

“Going for clinical outcomes – it’s really, really hard, because everyone’s going for the same thing and there’s not that many medically complex patients coming out of the hospitals,” Cloch said. “So it’s really hard to get those patients and to capture them.”

But those SNFs that do custodial care well will end up succeeding overall, Cloch added, because of a lack of places for those patients to go.

Therapy in context

When it comes to PDPM, there has been widespread chatter about the changing role of therapy under the new system, and talk of therapy as a cost center, rather than a revenue driver. That has prompted questions about whether therapy should be brought in-house or outsourced to third parties.

But though there was speculation about momentum to take therapy in-house, it’s not something that Martha Schram, the president and CEO of Aegis Therapies, has seen.

The Frisco, Texas-based Aegis provides third-party rehabilitation to more than 500 nursing homes and senior care facilities.

“The conversation, really, in terms of what role does therapy play, has to be in a broader context — things like value-based purchasing, quality measures, et cetera,” she said.

In fact, for smaller providers, it might be wiser to take advantage of the resources and infrastructure of a third-party company, Cloch said. But one thing is certain: Therapy providers have to ensure that they know what their clients want to achieve under the new Medicare payment system.

“There’s been a lot of opinions generated in terms of what therapy will look like moving forward,” she said. “In talking, it’s important first to understand: What’s the strategy? People have very different strategies as they’re entering into PDPM. And an outsourced company needs to align with whomever their client is.”

Outcomes and value both essential

Though providers have to keep PDPM at the top of mind — along with the pressures of Medicaid — they have to focus on the ultimate goal of improving patient care and outcomes in a way that provides value.

And in the push to HCBS, SNFs actually have a case to make that they can provide care more cheaply for their current patients than home care could, Cloch said. In fact, he asserted that the services needed to care for a skilled patient in the home would be more expensive than those in a SNF.

“I think in states that don’t have Medicaid assisted living, the shift to doing custodial care at home for the current skilled nursing population, I would say across the country, is not a better financial model,” he said.

Sending patients home could actually be worse in terms of outcomes; one study published in JAMA Internal Medicine found that patients discharged to home health agencies had higher hospital readmission rates than those sent to a SNF. In most cases, the outcomes are worse, even though many hospitals are increasingly discharging patients to their own home health agencies, Cloch argued.

But as managed care and Medicare Advantage enrollment continue to rise, the outcomes disparity could give SNFs a leg up.

“It goes back to the math, especially with this major push across the country with Medicaid managed care — the Medicaid managed care firms that own that risk, they’re going to look for the lowest-cost provider they can find,” Cloch said. “And when they try to shift it to home, they’re going to realize that the people who are living at home are in and out of the hospital so much, it’s increasing their costs. So going to a SNF is going to be a far better deal.”

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