On paper, a skilled nursing facility starting its own specialty Medicare Advantage plan sounds like an easy decision: In an era of tight reimbursements, staffing pressures, and length-of-stay declines, why not control the payment source that so frequently vexes them?
But according to René Lerer, the calculus for Institutional Special Needs Plans (I-SNPs) just isn’t quite that simple. As the CEO of Longevity Health Plan, he’s shepherded two affiliated I-SNPs — Longevity Health Plan of New York and Longevity Health Plan of Illinois — into creation over the past year, with expansions into Florida, New Jersey, and Oklahoma set to launch on New Year’s Day 2020.
Lerer joined SNN for the most recent episode of our podcast — “Rethink: The Future of Skilled Nursing” — to discuss Longevity’s unique model and growth strategy, as well as the factors that curious operators must consider before taking the plunge into becoming a full-fledged insurer.
“Really understand what an I-SNP is, and what an insurance company is,” Lerer said. “The world always said: ‘Insurance is easy; I can do it myself.’ You need to look at all the health plans that were started by medical groups and hospitals that didn’t survive. Because it’s not that easy. “
Read on for condensed and edited excerpts from our conversation, and be sure to download the most recent episode on the podcast service of your choice. If you like what you hear, don’t forget to subscribe so you don’t miss a single installment.
Talk a little about your model: It’s multiple different nursing home owners that are working together to to grow these plans? Is that correct?
We’re a bit unique than other plans in that we are provider-sponsored. In every state that we go into, we create the legal entity in that state. And that entity is owned 50-50 by the investors at the parent company, and by local operators in the local states. So all aspects of the businesses are shared on a 50-50 economic basis between the nursing home operators, nursing home owners and the financial investors.
So there are multiple nursing home owners who are investors, and there are also nursing homes that participate in the plan as providers who are not investors. Each state is its own entity.
There is a Longevity Health Plan of New York, there is a Longevity Health Plan of Illinois, Florida, Oklahoma, et cetera. Each state is a separate entity and has a different set of owners. The parent company is an owner in each state, but the owners — the SNF owners, or the nursing home owners — differ state by state.
How do you go about building something like this from the from the beginning — and then once you have it up and running, how do you go about expanding into different states?
There’s several aspects to this. One is: What are the building blocks to put up an insurance company? An I-SNP is an insurance company. It’s a Medicare Advantage plan. As you know, there are several kinds of MA plans. There’s the traditional MA, MAPD, and plans which are generally HMO, PPO, and there’s the special-needs plans: C-SNPS, which are chronic special needs; D-SNPs, duals; and I-SNPs, which are institutional.
So we are an insurance company, but we partner with providers — and in this situation, for an I-SNP, the primary partner is the nursing home. That’s where these residents, these members reside. And so we work closely with them to work and change how those patients are being managed — improve quality and outcomes and so on.
But initially, to start an I-SNP, you first must be a licensed and regulated entity in the state. So for example, Longevity Health Plan of New York, Longevity Health Plan of Illinois, is a licensed HMO in each of those two states. That requires you to file for an HMO license through the departments of insurance — each state has a different name, but it’s essentially the insurance commissioner — to demonstrate that you’ve built an insurance entity, that you built an entity with networks, that you have adequate net worth, that you’re putting up risk-based capital, that you’re meeting all the guidelines of who’s involved in the entity, and what the rules are and how the HMO works.
In each state, you go through a detailed application process to be licensed. That allows you to be an HMO. But Medicare is a federal program. It’s not a state program. So once you have your statewide license, you then have to apply to CMS for an H-contract, which is a contract to become an MA provider.
That process takes quite some time. You file initial applications in February. This is to go live the following year. For example, we filed in February of 2019 to go live for our new states in 2020. Then, in order to get approval from CMS, it’s a very detailed financial bid — talking about your financials and expectations for management. For an I-SNP, you have to put in a model of care, which is the management process that you will use to manage and develop individual care plans for each of these patients.
Obviously, institutionalized patients are different than a traditional 65-year-old, or what we call an age-in into Medicare Advantage or traditional Medicare. And you have to build a network — meaning just like any Medicare Advantage plan, you have to have a comprehensive network of providers: hospitals, facility providers, physician providers, ancillary providers. And you have to meet CMS geo-access — meaning there must be an adequate number of providers that have good geographic access to anyone who might join your network.
Once you meet all those requirements, and once you submit your bid, you submit your plan of benefits — you have to describe what benefits you’re going to offer the members. That gets submitted the first week in June. There are often questions going back and forth, and you get final approval, hopefully, in September for your bid. If there are any deficiencies or questions, those need to be resolved.
Medicare open enrollment for all Medicare products start October 15. So you must have full H-contracts, full licensure, full network before you can begin enrolling members in the I-SNP. Again, it starts October 15 for effective dates of January 1. It’s the only time of the year that you enroll someone in an I-SNP for not the subsequent month. So you can enroll somebody on, October 20, [and the] effective date is January 1. You can do the same thing in November, up through December 7.
For traditional open enrollment in an I-SNP, however, you can enroll anytime, and generally you would then be effective the first day of the subsequent month.
So that’s how you get it up and running. The challenges are significant. One, you have to have significant financial backing, so that the state will grant you the license. They want to make sure that as an insurance company, you have adequate reserves in the event that your expenses are higher than you thought — or you can’t get funded, but yet you provided services to patients, to doctors or hospitals. They want to make sure you have adequate reserves to fund those.
How much money do you need, or what kind of scale do you need, to get this started? When they say sufficient reserves, is there a number, or does it depend on how big you want to get?
So it varies state by state. Some of the nursing home owners who think they will do this themselves, they don’t realize if they’re in three states, they need three separate licenses.
One guy said: “I’ll use my license in Kentucky,” or wherever they are, “and I’ll just go in all the states.” You can’t do that. Every state has their own rules.
So there’s risk-based capital and there’s minimum net worth. That’s capital that you need to put up that’s restricted; you need to always have that money there. You can’t spend it down. The state generally — again, it varies by state — will say that at any given point in time, you must have certain reserves sitting in the bank that you’re not using for other things. So those are the reserves.
But in addition to the reserves that are sitting there, you also have the expense of building a network, which is going out and contracting providers — every kind of provider. You also have to put in your own infrastructure, obviously; you have to understand the insurance, you have to have compliance capabilities, you have to have network people. So you have to build an infrastructure to support all of that.
And then you’ve got to have an implementation capability — how to get something up and running. You have to have a claim capability. You have to have an enrollment capability. You have to be able to, as I said, pay claims, do actuarial reports, have financials. It’s complicated.
It depends on the state. And it depends on how big you are. And it depends on what your plan is for membership. It would not be unreasonable to assume that number can vary between $8 [million], $10 [million], and $12 million. So it’s not insignificant.
And some of that is startup costs. You know, you have to hire people before you go live. So you’re paying expenses for people and have no revenue. Your revenue doesn’t start until you enroll a member. So if you have an executive director, or if you have a nurse or a nurse practitioner, whether you have one member or 15 members, that’s a fixed cost. It becomes variable as you grow.
It’s quite expensive to start. It’s honestly much more than money, you know. Given my background in the insurance world, I’ve seen very often that providers — whether that’s physician providers or hospital providers — believe they can become their HMO. In reality, some, few have been successful. Most have elected to be an MSO, a management service organization, where they work with an insurance company and take risk, but they’re not the insurer. So they’re not required to put up the capital. They don’t have the entire infrastructure. There’s ways to get around it, and we created Longevity as a vehicle to substantially decrease the amount of dollars an owner would need to invest to have an equity share — yet still have the benefit of the value proposition that they’re driving.
But the interesting piece of this, and as we talk to nursing home operators and owners, is that it’s a fundamental change in how they think. It goes from what historically has been a PPD — patient per day revenue — to PMPM, because now you have enrolled members — PMPM being per member per month. And secondly, the value proposition in the I-SNP is managing the outcomes for the patient to improve health and quality at a lower cost. And the value proposition is: the SNF owner and the home participates in the management of the patient. If they’re able to manage higher quality at a lower cost, they share in the value.
So today, if you’re in a traditional fee-for-service environment as an owner, someone goes to the hospital — that doesn’t cost you anything. In I-SNP, you have ownership, you have participation in the entire premium dollar. So if someone goes to the hospital, it comes out of what we would calculate as your value proposition. So the goal here is, particularly in this population, hospitalizations — not typically great quality. It’s not a good thing for an older person. I’m a physician by training. I practiced medicine for a number of years. With this population, if you can avoid hospitalization, it’s in their best interest.
So if a nursing home owner or operator can help support that patient, skill them in place, and basically treat in place, it’s a better outcome for the patient. And the nursing homeowner is rewarded for that — if they’re in an I-SNP that will share the value. At Longevity, because it’s a 50-50 partnership, any value that’s created is split evenly with the providers and the investors. So it’s the notion of going for from: How much revenue do I get in the nursing home? To: How much value do I create? And how much of that value that I create is shared with me? It’s a fundamental change.
That mindset isn’t too far away from what regular Medicare is trying to do with various value-based initiatives — just kind of a super-charged version of that.
It’s interesting: You use the term “regular Medicare.” I’m not sure there is such a thing. There’s Medicare Advantage. This is just a version of it. So you see in many parts of the country, it’s not a nursing home owner. It’s a primary care physician for people in the community.
Obviously, the majority of Medicare members are not institutionalized. In that environment, it’s the primary care doctor who often owns the responsibility for the overall management. This scenario, what you really should think about is that the nursing home operator, the director of nursing, the administrator, the operator, is functioning as the overall manager of this patient by coordinating with the PCP, developing relationships with the hospitals, working with their own clinical staff, working with, in our case, our NP and clinical folks. They become the general manager for the patient because they know this patient better than anyone else, and they can provide services so that resident doesn’t have to leave their home — but in fact can get good quality care in the nursing home.
When we talk to owners, and we talk to operators, when they understand that, the light goes on, and they understand the value proposition here. Clearly, I-SNP is not the exact same as a traditional MA plan. But it’s very clear that the government and CMS is supporting this program. And they’ve stated over and over again, they are going to move … greater than 50% of all payments to value-based care.
And that number, I believe, will only grow. So this is coming. And it really is quite interesting to work with operators who really care about the patient. As we look at the nursing home owners, they really care. It gives them the opportunity to have a much broader role in the whole constellation of care.
How do you go about marketing these plans to residents of nursing homes without pressuring them, or running afoul of any regulations about patient choice?
So marketing is quite different than — I’ll use your term — a “regular” MA plan, because this is viewed by CMS, appropriately, as a vulnerable population. You don’t want to let loose sales folks in a nursing home to just randomly go talk to people and say, “Don’t you want to join my plan?”
You don’t want to do that. In fact, it’s not legal. There’s a very highly prescriptive manner about how you’re allowed to enroll members in an I-SNP. First, to be a member in an I-SNP, you generally are an institutionalized patient. These are only long-term patients, not people who are in a home, you know, for rehab for a month or two. But these, unfortunately, are people who are likely to be in an institution for the balance of their life.
They’re generally much older, and again, quite a different group. So the way this works is: First you work with a nursing home, and you talk about your program and what you do and why you think it’s in their interest for their residents — both from a clinical and a quality perspective. And also, they’re obviously interested in the financial implications of joining, if they agree to participate.
If they don’t, then they don’t and that’s the end of it, and you can’t enroll any members in that building.
But if they do agree to participate, there are very proscribed marketing techniques, and they are expected to present to their residents that there is now another option available to them in the I-SNP world. If that patient or family member or guardian — whoever has responsibility for the resident — says, “I’m interested,” or, “I’d like to learn more,” the I-SNP is then given lists of folks who have demonstrated interest; they’ve signed something saying they would like to have a conversation. And at that point, we’re allowed to send in staff to go have a conversation with the resident and explain the program, and the benefits of it, and what the value proposition is.
And if the patient signs, then they participate, and they become eligible the first of the next month. If they elect not to participate, they then generally are either traditional fee-for-service Medicare. Some of them may be in a different MA plan, but most most carriers, most big MA carriers, either don’t participate in an I-SNP, or they do their own program. The general MA population, the programs that are established, don’t work really well for this population. This population has unique needs. So it really does need a specialized plan.
How should an operator approach the decision to start an I-SNP, or potentially join up with a company like Longevity?
So I think there’s two questions there. I think one is: Should I be in an I-SNP? Should I bring I-SNP into my building? And the second question is: How do I do it? Do I do it myself? Do I do it with a vendor? Do I do it as a partner? What vehicle should I use? So should I get in the car, and then what kind of car should I buy?
And I think the notion of getting in the car, before you decide whether you do it yourself or not, is really: Do an assessment of your building. Remember, a I-SNP of any kind is an insurance program. Insurance is based on shared risk. You need large numbers of people, residents, to be an insurer. You don’t want to sell car insurance or homeowners’ insurance to one person — because if they have a problem, you’re out of business; your premium will never cover it. So there’s an issue of scale. You want to have enough members so that there’s a distribution of risk across that population.
Remember, you’re now covering hospitalizations and drugs that you didn’t cover, you didn’t have responsibility for. So if you have an unfortunate person who is quite ill, it could get quite expensive for you.
Number one is scale. They say: “Ah, you could do this with 50 patients, 100 patients.” I wouldn’t do that. When you’re an employer and you buy health insurance, if you have 200 employees, you buy insurance. If you have 20,000 employees, you’re self insured. So in this example, scale is important.
Secondly, look at the management in your building. One of the key drivers of success in an I-SNP is the ability to medically manage the patient broadly — which means to have skill capabilities in the home, in the building, primarily to skill in place, to manage in place. Can you bring the services that patients need in your building to avoid a hospitalization? Do you have the staff? Do you have adequate numbers of clinical folks? Are you comfortable running IVs, giving IV meds? Are you able to go in and truly monitor patients? Do you have some kind of predictive capability so you can identify who’s likely to get sick — so you can bring in additional resources?
A big issue is: What does your patient population look like? And do you have the skills to manage them in the building and avoid the hospitalization?
Then third: What’s the culture of the building? It’s a change in mentality. Is your staff able to make that change? Is your staff able to make the switch from: How do I maximize my Part A days? Or how do I create value in the home? To: How do I create value by managing this patient? So how they spend time with patients, and how they interact with the I-SNP — whether it’s theirs or someone else’s — is quite different.
If you have very high admission rates, you don’t want to join an I-SNP, or definitely don’t want to be your own, because you’re at risk for every one of those dollars until you figure out how to manage.
If you go through all of those things and decide that you would like to either be or participate in an I-SNP, then the question is: Do you have the capital? Do you want to do it yourself? Are you willing to take on that risk and bring in all the administrative requirements that you need?
So really understand what an I-SNP is, and what an insurance company is. The world always said: “Insurance is easy; I can do it myself.” You need to look at all the health plans that were started by medical groups and hospitals that didn’t survive. Because it’s not that easy.
I’m a big fan of: If you know insurance, be an insurance guy, not a hospital or nursing home. And if you’re a nursing home manager, and you’re good at it, be a nursing home manager, not an insurance guy. They’re businesses that support each other, not compete with each other.