As skilled nursing facilities navigate thin margins, payer pressure on patient length of stay and reimbursement shortfalls, the resulting financial headaches can have ripple effects for their partners.
Vendors such as food service or pharmacy companies can be particularly vulnerable to a SNF’s financial struggles. But for third-party rehab companies, a tumultuous SNF world – where closures and receiverships happen across the country – is particularly challenging, Susan Krall, vice president of strategic partnerships at the Dallas-based Quality Rehab Management, told Skilled Nursing News.
“There’s such a lot of risk right now in being a third-party rehab provider, I would say,” she told SNN.
Quality Rehab Management is a rehabilitation management organization that, among other services, provides consulting to SNFs looking to move from third-party to in-house. For Krall, who has been through her share of SNF bankruptcies during her more than 30 years in the SNF world, the challenges for rehab companies in a changing landscape are not new.
But for third-party rehab companies, the challenges are particularly acute now due to the Patient-Driven Payment Model (PDPM), because changes in SNF reimbursement on the federal level always cause upheaval in the form of changing ownership.
And when a SNF changes hands, there is no guarantee that the new operator will open a new contract with the therapy company that was working with the previous operator. This leaves rehab companies in an uncertain position.
“That’s what we see a lot off: Either the leases get overwhelming or they’ve acquired too many, several buildings at once and the changes of ownerships are so slow that their funding comes slowly,” Krall said. “Or they just have not been able to weather the Medicaid reimbursement.”
Another challenge is simply related to reimbursement timelines, Krall explained. When a SNF changes owners, the new owners must contend with a multi-month process at the state level to begin billing and receiving payment. This delays the provider’s state-level reimbursement, which can put them behind on payment terms to their rehab provider, Krall said.
“Even though rehab companies don’t provide a lot of rehab to Medicaid recipients, not certainly at the level of the other payers … that’s what drives the health of the provider’s facility: what’s happening on the Medicaid side,” she told SNN. “As that part of the world is challenged, so are we as providers of rehab.”
Managing SNF payment realities
To navigate these challenges, third-party rehab providers must pay attention to their books of business and keep track of payments, Krall and Schram emphasized. This is particularly pressing for smaller rehab companies, which may have fewer contracts than larger ones and, consequently, less financial leeway when a client starts stringing out payment, Krall said.
“Just one of those providers going through some sort of financial crisis could be really devastating,” she explained.
With the reimbursement landscape tightening for SNFs across the country — particularly on the Medicaid front – Aegis had to proactively monitor troubled providers for potential issues. For the Frisco, Texas-based Aegis, which provides third-party rehabilitation to more than 500 nursing homes and senior care facilities, being proactive meant reviewing and risk-stratifying the portfolio, Schram told SNN. And that’s not possible without solid relationships that run several layers deep with a client, she added.
“This is all based on the depth and strength of relationships,” she said. “Because we have to make a decision about what kind of risk our revenue is at. So we really went about requalifying all our customers. And that’s hard to do.”
There are a variety of ways to do that, Schram said. But the focus is primarily on transparency: how willing a client or prospective client is to have conversations around payment, timely payment and challenges. Aegis is open to payment plans for clients who run into challenges, Schram noted, especially given the challenges in the SNF world that can lead to client struggles.
Krall also emphasized the importance of transparency, particularly since many of the challenges providers run into are temporary. Clients who proactively call and explain their financial situation, especially if they have a track record of timely payments, are less worrisome, she said.
“The ones you worry about are the ones that go silent,” Krall said. “All of a sudden, there’s no payment, [and] you’ve got to really try to track somebody down to hold their feet to the fire.”
When Aegis assesses potential new clients, especially recently, it focuses particularly on what is happening in their market, Schram told SNN. If providers are struggling in other areas of business, then that could be a sign they’ll struggle to make payments. Another red flag is clients requesting “very extended payment terms,” Schram said.
The goal is to stratify the risk, and as Schram noted, “it’s not a perfect science by any means.”
Procedurally, it’s important that third-party rehab companies monitor the payment, make sure clients are paying according to the terms and set up systems to send invoices in a timely manner to the right people, ensuring there are reminders before the due date and establishing systems to deal with clients that don’t pay by that date, Krall said.
Aegis also conducts monthly “line-by-line” reviews of every contract, Schram said. The company pays attention to a client’s payment history and how they handle different reimbursement environments, because a client struggling to meet contract terms in a good payment environment is likely to struggle in one that becomes more difficult, Schram said.
Aegis estimates that about 1.5% of total revenue has some potential risk based on all the environmental factors in the SNF landscape, and it tries to advocate on the issues that matter to SNF clients, Schram told SNN.
“We work very hard to advocate with and on behalf of our clients and customers to achieve the Medicaid reform that they need so desperately, and really try to partner with them,” she said.