Skilled Nursing Dealmakers Could Be Overlooking PDPM’s Potential for ‘Biggest Year’ in Decades

The market will still need to determine whether the new Medicare reimbursement structure for nursing homes will be a net positive or negative for the industry, but at least one insider says buyers and sellers in the space aren’t optimistic enough.

Current prices for skilled nursing facilities don’t typically account for the potential of cost savings under the new Patient-Driven Payment Model, Vincent Fedele said during the first annual Skilled Nursing News summit in Chicago last week.

“There’s expense reductions that can be factored into the Part A population with respect to therapy,” Fedele, director of analytics at consulting firm Zimmet Healthcare Services Group, said. “It’s something to consider. I think a lot of the deals I’m looking at now, currently, we’re not really seeing those expense reductions baked in — and I think it’s an opportunity.”

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And while the system is designed to be revenue-neutral, Fedele predicted that those expense savings — which can be achieved through greater use group and concurrent therapy, among other modalities — will be significant enough to turn the vast majority of providers into winners.

“I think 90% of the facilities in the country can be either net or nominal winners — meaning they increase their revenue, or when you factor in the expense reductions on the therapy side, will make out ahead,” he said. “I think some operators will have the biggest year they’ve had in the last 20 next year.”

Expense cuts have frequently come up as a secret weapon under PDPM, which takes effect October 1 and shifts Medicare payment incentives away from therapy minutes and toward resident acuity. The Centers for Medicare & Medicaid Services (CMS) has pledged that the system will not affect the total number of dollars allocated for Medicare SNF services, meaning every revenue winner will create a revenue loser elsewhere in the country.

This has generated momentum behind the strategy of taking on higher-acuity residents, with services such as ventilators and tracheostomy care promoted as a way to replace therapy as a revenue driver. But Erin Shvetzoff Hennessey, CEO of operator and consulting firm Health Dimensions Group, cautioned that providers shouldn’t jump into offering those services arbitrarily.

Specialty residents bring considerable boosts in pharmacy, medical supply, and staffing expenses, she warned — while also noting that CMS will have an eagle eye on any major shifts in care, with an end goal of potentially issuing civil monetary penalties (CMPs) to operators that appear to game the system or fail to provide quality specialty care.

“As people start to evolve into more complex providers, this needs to be taken into consideration — and to be very careful to make sure that you don’t jump too far and that every extra dollar you made from your PDPM rates gets taken in a CMP,” Hennessey said.

Aaron Tripp, vice president of reimbursement and financing policy at industry trade group LeadingAge, agreed with that assessment, contrasting PDPM with the similar Patient-Driven Groupings Model (PDGM) coming to home health operators. With that change, CMS actually factored anticipated changes in provider behavior into its reimbursement math — an outcome that Tripp emphasized SNF operators will not want to see on their side of the payment equation.

“If you are, all of a sudden, jumping into admissions that you weren’t taking before, you’re really putting yourself at risk,” Tripp said.

Hennessey, Fedele, and Tripp speak at the 2019 SNN Summit in Chicago. / Andrew Merz for Aging Media Network

But PDPM also encourages the use of group and concurrent therapy sessions when medically appropriate, a major way that providers can reduce Medicare Part A expenses. Operators can also potentially see expense savings in their contracts with third-party therapy providers, though Hennessey emphasized that there isn’t a one-size-fits-all solution for handling the in-house versus contract equation.

Health Dimensions Group currently manages about 70 properties with a major presence in Minnesota, and even within that footprint, the company employs a variety of different therapy strategies, from relying on in-house therapists to contracting with regional and national third-party providers.

“There is a right answer for each location, and I think that what we’re looking at is, at each location: Do we have the staff, do we have the training, do we have enough volume to make it worth it?” she said.

At Zimmet, which serves about 25% of the nation’s 15,000 nursing homes in some capacity, Fedele said he’s seen a variety of different therapy contract structures, from fixed per-diem charges to a percentage of each individual discipline — physical, occupational, and speech — to the old standard per-minute model. But while operators will need to sort out those changes and determine what’s best for each individual model, they’ll also have to reckon with what isn’t changing.

“You want people with higher acuity if you can handle them. An interesting and important point to make is the payment system’s changing — the patient population in the market’s not changing,” Fedele said, adding that Medicare fee-for-service admissions represent a small portion of each SNF’s potential resident pool

Fedele also took the opportunity to preach the importance of PDPM coding only up to a point. While some operators are investing heavily in training their staff on ICD-10 codes, a type of Medicare payment designation that will take on increased importance under PDPM, Fedele asserted that providers don’t necessarily need to go overboard.

“I think a certified coding license is important, but unless you’re also a PDPM expert, it’s not going to really help you,” he said. “CMS gave us the answer sheet. They told us what codes get into what categories. It’s very linear.”

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