Why $34M Wasn’t Enough for Skilled Nursing Telehealth Provider Call9 to Survive

Skilled nursing-focused telehealth provider Call9 attracted $34 million in venture capital from sources as diverse as the former chairman of tech incubator Y Combinator to actor Ashton Kutcher.

But in the end, that cash and high-profile attention wasn’t enough to carry Call9, which is in the midst of suspending its operations, to success in today’s reimbursement landscape — with its founder and CEO placing the blame on investors who couldn’t see the long game of value-based health care.

“You can’t lean into fee-for-service in order to maximize the amount of cash that you’re getting in the short term, and keep the good graces of the payers and the world out there, who’s trying to work with you toward being a value-based company,” Timothy Peck told Skilled Nursing News last week. “You have to decide one way or the other.”

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In order to truly have made his company work as an innovator in the new payment world, Peck said, he would have needed funding more in line with what Cityblock Health, a telemedicine and care platform targeted at residents of lower-income communities, has received — a figure that CNBC pegged at around $85 million.

“Our investors were interested in a different approach, in which it was: How about instead of investing more dollars into the company, turn toward trying to maximize the fee-for-service benefits, and the fee-for-service dollars that we were getting, in order to fund ourselves with our own revenues and immediate cash flow?” he said.

The Call9 model worked by embedding emergency personnel in nursing homes, while also connecting SNF staffers to remote physicians via iPads and other technology. The platform thus revolved around reducing hospital admissions and improving patient care, both long-term aims of the Centers for Medicare & Medicaid Services (CMS).

For nursing home operators, that would mean using Call9 to reduce readmissions in order to boost their five-star quality ratings and avoid penalties under the SNF Value-Based Payment (VBP) model, which automatically cuts 2% of a provider’s Medicare reimbursements — an amount they can win back by meeting certain readmission benchmarks.

The company also pitched its services as a way to win more referrals from hospitals, and fill beds with the kind of higher-acuity residents that competitors in a given market might not want to touch.

“They want to send their sicker patients to a place they will be taken care of and not bounce back for 30 day re-admits,” Peck told SNN in early 2018. “[Our customers] have better results and they get more patient referrals.”

In addition to operators, Peck and Call9 targeted insurance plans as customers, already securing some risk-based contracts with payers such as Blue Cross Blue Shield looking for ways to reduce their overall health care spend; in addition to readmission penalties, the cost of frequent ambulance rides from a SNF to a hospital adds up, and nursing homes typically account for about 19% of all ambulance rides to emergency rooms, according to Peck.

You just took talent, heart, dedication, sweat, and gave it to billing for something that creates no value.

The model itself showed promise in the early going, with one analysis of 654 nursing home residents showing that Call9 was able to prevent 70% of them from going to the hospital over a nine-month span, and operators such as Central Island Healthcare — Call9’s first customer — reporting solid outcomes as recently as earlier this year.

But in Peck’s telling, the cost of building a value-based platform began to spook the company’s investors, who began pushing Call9 to focus on the more lucrative fee-for-service model.

“It worked, believe it or not,” Peck said. “We were able to make a good deal of money off of fee-for-service and were able to become profitable as a company in terms of nursing home units. Whenever we added a nursing home onto our system, it was profitable, and contributed to our overall margin.”

SNN reached out to multiple firms that provided Call9 with financial backing; all either declined to comment or did not respond to requests as of press time.

That said, the strain of straddling both worlds took a toll on the company’s ability to meet its original goals, and the short-term profitability of the fee-for-service business wasn’t enough to offset the investor worries about the long-term, value-based picture, Peck said.

For instance, Peck spoke of his dissatisfaction with having to hire coders to help bolster the company’s internal fee-for-service billing software, instead of having them develop new solutions for resident care.

“You just took talent, heart, dedication, sweat, and gave it to billing for something that creates no value,” he said.

In addition, many of the company’s contracts with payers were designed to start out as fee-for-service and then shift to a more value-based reimbursement system once the company hit a certain critical mass of nursing home residents under its care. But Call9 couldn’t reach those numbers without greater cash flow, and the company’s focus on fee-for-service residents confused investors that might have been interested in putting their money in a truly value-based company.

“It was a mixed message being sent,” he said. “It led to a lot of difficulty with fundraising, and ultimately, the partnership between us and some of our other investors just was untenable.”

Peck’s refrain is not uncommon among skilled nursing operators and other players in the greater health care space, as CMS and private payers continue to push toward new payment models that reward operators for lowering costs and improving outcomes. At the same time, however, standard fee-for-service Medicare remains the gold standard for skilled nursing reimbursement, far outstripping managed Medicare rates without any of the attendant difficulties — including length of stay pressures.

In addition, Medicaid remains by far the most prominent payer for nursing homes services, meaning that any extensive investment in working with new Medicare payment models could only end up affecting less than 20% of a company’s reimbursements.

“You can’t have two feet in fee-for-service, and you can’t have two feet in population health management right now,” Vincent Fedele, director of analytics at consulting firm Zimmet Healthcare Services Group, said [last year. “And we’re somewhere in the middle right now, in an awkward stage.”

Fedele went so far as to say that he’d be negligent in his duties as a consultant to advise a company, for instance, to reduce its length of stay in order to attract the attention of referral partners in newer payment models.

Moving forward, Peck plans on continuing the Call9 brand with a new model that includes nursing home care, though he said it’s too early to discuss the details publicly; a primary care practice with the Call9 name also remains operational and ready to see patients. But no matter what form his company takes, he’s swearing off the temptation to ever again focus on fee-for-service.

“If we, by chance, do something that is reimbursable by fee-for-service, we will bill for it, because we’re deserving of that money. But I’m not going to go out of my way to build product or processes that don’t help patients, but simply need to be made in order to check some boxes, waste some time, waste some money of the payer and Medicare, in order to get a dollar,” Peck said. “That’s not the goal. That’s playing for a very short game, and it’s not what I want to do with my life.”

Maggie Flynn contributed reporting to this story.

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