Confessions of a Post-Acute Operator: Hospitals Should See SNFs as Competitors

In the current post-acute care landscape, hospitals reign supreme, helping to decide the fates of the players farther down the care continuum. In recent years, skilled nursing facilities have suffered under hospitals’ watch, as the acute providers increasingly shift post-acute residents to the cheaper home health setting.

But at least one provider says it’s time for SNFs to take the fight directly to hospitals.

In our latest edition of our Confessions series, an operator in the post-acute space tells SNN that SNFs remain the lowest-cost setting of care for a large swath of patients who would otherwise be in a long-term acute care hospital (LTAC) or an acute rehab setting — though hospitals and government payers don’t always want to accept that as an answer.


SNN’s Confessions interviews give professionals in the post-acute and long-term care industry a space to sound off on the pressing issues that affect their businesses and care plans on a daily basis. This piece has been condensed and edited for clarity, as well as to protect the anonymity of today’s subject.

Know someone who’d want the opportunity to speak freely about the current state of skilled nursing — or want to sit down yourself? Reach out to for consideration.

Okay, let’s get started.

Let me give you the story that I’m dying to tell you. I was meeting with the senior leadership of large health care system to discuss post-acute strategy.


We start talking about what types of patients that can leave the hospital sicker and quicker. We described them, and everybody says, “Yeah, you’re right. That could work.”

And then we start describing some patients who are going to LTACs or acute rehabs. And they said, “Yeah, you’re right as well. They easily could go to what you’re describing. If the clinical environment you’re describing existed, they could easily go to that environment at a much lower rate. We agree.”

So then an executive at the hospital system says to me, “You know, we own an acute rehab, and we own an LTAC.” I go, “Yeah, I’m well aware of that.” And they say to me, “Why would I ever take away the volume from those two facilities to a lower-cost setting?”

And then I looked at the value-based ACO population health person who works for the same system, and they said, “Why are you looking at [that person]?” And I said, “Because you have a big winner on the ACO.”

And they said, “We’ve already had this discussion, and I won. So until I have to move the volume, I won’t.” So therein lies the problem.

What’s the answer, then? The last Confessions piece we ran, for example, was an indictment of the accountable care organization (ACO) model. What’s it going to take to get everyone on the same page?

The federal government to come in and really design a new reimbursement system. I feel bad for the hospitals, because they need to make a living. We need hospitals to exist. We need a lot fewer to exist.

So many of these hospitals need to shut down, and then the ones that stay open need better reimbursement. And they need to get paid more for doing the things they should be doing, and not do the things they shouldn’t be doing, like I’m describing.

Right now, you’re saying the system is too focused on the hospital?

The system is too focused on episodes and sites of care, not total cost of care. So until that shift happens, strategic SNFs that are doing post-acute are going to struggle.

How long of a runway is there — MedPAC has been talking about unified post-acute payment models for years now, and the wheels turn slowly. Is it realistic in the next five to 10 years?

For sure. I’d say even faster. First of all, if I ran my business or I made investment choices based upon MedPAC, I would have been out of business a long, long time ago. I’ve been in the business long enough to see what happens with MedPAC suggestions.

They should be cutting the higher-cost settings, not the lower-cost settings. They should be paying skilled nursing more, not less. We are the lowest-cost provider. So why are you rewarding the higher-cost providers?

Because it’s built around the hospitals.

It’s built around acute care. But that’s changing right now, and that’s why I think you’re seeing this surge of provider-owned health plans, because basically then, you’re leapfrogging the hospitals, and you own your own plan, and then you’re able to do things.

I was going nuts about all of the acute-care systems demanding the shift to home health without the data to back it up. The real conversation should be: If you had a patient get admitted to the hospital through the ER or a direct admit, that was there in an observation stay for less than three days and then went home safely with home health, why was there any hospital stay at all?

If I were the federal government, I would say: “We shouldn’t pay you anything. That patient should have been in a lower-cost setting, and you guys charged too much for what you did. That patient should have been directly admitted to a different setting, or should have been taken care of at home without setting foot in the hospital.”

That’s an interesting take on the observation vs. admission controversy — what’s the federal government saying a hospital stay is worth in that situation?

Right. And is there a different model of care where that person could have gone to urgent care and stayed overnight in a SNF at a total cost of $5,000, versus the $20 [thousand] that total cost of care probably was? The outcome would be no different.

SNFs are going to have to get more creative. They’re going to have to do direct admitting. They’re going to have to start competing with hospitals for the lower care levels.

You’ve got somebody grabbing their chest who has a heart attack, they need to go to a hospital. But somebody that’s just dehydrated and not feeling well could go to a SNF that had a direct admit, or an urgent care attached to a SNF where someone could stay a night or two in a SNF.

A SNF license is the lowest-cost-of-care inpatient setting. Nothing can come close to it.

How viable is an I-SNP, or an in-house Medicare Advantage plan, for most providers? There seem to be two schools of thought: Everyone should have one, or it’s only for the largest, savviest operators.

I think the opportunity to align with a payer is far more important than anything, whether you own it or not.

If you don’t have scale and density, then partner with someone that’s in the market and align interests, and find a payer that truly aligns their interests with you, that wants to utilize you as a way of managing cost of care. So you don’t have to own the payer, but you have to work with somebody that gets it, and not a lot of payers get it. So you have to work hard to find the ones that do.

How do you find those partners, and what do you have to say to them to convince them?

There are payers all over the country that get it, but you’ve got to find them. And you’ve got to find the payers that are willing to change the way they do business — and what I mean by that specifically is change the way they contract with physicians, with home health, with end-of-life care. They have to change their behavior so they don’t continue to pay those providers in a fee-for-service way. So if you continue to pay a doctor fee-for-service, then they’re not going to change their behavior.

Don’t get into bed with payers that don’t have experience in government programs. And what that’s indicative of: They manage premium and not care. With government programs, there’s no opportunity to manage premium. You need unique new delivery models with new kinds of care. 

I hear a lot about providers struggling to straddle the fee-for-service and value-based worlds — the sticks aren’t sharp enough to motivate operators and payers to fully make the switch to value. Would you agree?

Yeah. Using your analogy, the stick isn’t sharp enough, and the carrot’s not big enough. Just like my hospital story: It’s still way more advantageous to make $1,700 a day on an inappropriate LTAC or acute rehab patient than it is to win on the value-based care.

I’m going to say that the reimbursement is $800 a day for me to provide the exact same level of care for 50% of the patients in an LTAC or an acute rehab. Their reimbursement is $2,500 a day. So they’re winning $1,700 a day. They win more making $1,700 a day than they win by shifting to a value-based care and moving somebody to my building for $800 a day and just getting the shared savings.

The stick isn’t sharp enough, and the carrot’s not large enough to change behaviors.

It’s hard to live in that middle ground.

I think it’s easy to switch if the stick were sharper and the carrot were bigger. If the carrot were: I can make as much money by saving as I can by fee-for-service, or even close to it, then I’ll do that. But until somebody forces me to switch, I won’t.

Anything you want to add that I haven’t gotten to?

I think the old skilled nursing custodial business is still really [expletive] good. The guys that are running 120-, 150-bed custodial Medicaid buildings — the only Medicare they have is the readmissions from the hospital of their existing custodial population. That business is still a good business.

It’s interesting to hear you say that, because Medicaid rates are a major source of doom and gloom in the industry right now.

If you’re doing something for less that somebody else is doing for more, you’ll be okay. It might have some peaks and valleys, but in the end, you’ll be okay.

At the end of the day, try to replace what we do at a skilled facility for less money in another environment. And you can’t.

That’s why the hospital systems and the high-cost providers should be more worried, and the government should be going after them. The government should be hitting those guys with a ton of bricks. And the way to back that up, if I’m the government, is to make sure that the post-acute downstream providers are well-positioned and well-capitalized to catch the volume.