Matros: ‘Good Operators’ Won’t Boost Group, Concurrent Therapy from 0% to 25% Under PDPM

The move to the Patient-Driven Payment Model (PDPM) at the beginning of October was marked by reports of provider mandates to increase the proportion of group and concurrent therapy services as a cost-saving measure.

But if SNFs that never used the models under the old Resource Utilization Group (RUG) system suddenly go right up to the new limit on group and concurrent therapy for patients, a leading CEO in the space says they should prepare for regulatory hot water.

“You’re not going to see the good operators go from 0% concurrent and group therapy to 25%, which is the max,” Sabra Health Care REIT, Inc. (Nasdaq: SBRA) chairman and CEO Rick Matros said on the company’s third-quarter earnings call. “You may see some guys do that out there, and I think they’ll get in trouble if they do that. But most of the operators that we’ve talked to are smarter than that.”

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The Irvine, Calif.-based real estate investment trust (REIT) reported third-quarter net income attributable to common stockholders of $23.28 million, or 12 cents per share, compared with $35.21 million, or 20 cents a share, in the year-ago period.

Matros attributed the declines in part to issues with one particular tenant, the Avamere Family of Companies, but was otherwise upbeat about the company’s skilled nursing outlook — and its tenants’ preparedness for PDPM.

No disruptions from PDPM for Sabra

October 1 marked the beginning of the new Medicare reimbursement system for SNFs, which saw incentives shift from the amount of therapy minutes a patient received to accurately caring for their clinical conditions. Because of how little time operators have had with the new system, most of Sabra’s SNF operator tenants are being cautious with regard to projections, though there are some early signs of better rates, Matros said in prepared remarks on the call.

One thing that helped was the fact that, well before PDPM, every SNF had “some percentage of patients” with major nursing issues that the the old RUG system wouldn’t allow SNFS to bill. That meant that they could use the needs of this population to train and become acquainted with the new system’s requirements, Matros said.

The fact that they had months to prepare also helped, he noted.

“We’re just very pleased that at this point, all of our operators have moved onto PDPM without any disruptions,” he said.

In terms of the future, Matros predicted that operators will become better at coding as they adjust to the new system. They’ll improve their group and concurrent therapy strategies, which operators and REITs had noted as an area for cost savings under PDPM. But Sabra’s SNF tenants are moving cautiously on that front, due to the potential for regulatory scrutiny, he added.

Overall, however, there’s reason to expect that moving away from RUGs will ease burdens for SNFs, particularly given that the old system contributed to many of their problems, he argued.

“We’ve gone from a reimbursement system that’s solely incentiveized operators to go after short-term rehab patients, which then in fact created industry headwinds,” Matros said on the call. “Because if that’s all you’re doing, you’re going to see continued shortening legnth of stay — which is then going to lower your occupancy and exacerbate all these other issues.”

Tech troubles for Avamere

Matros emphasized again on the call that there’s overall optimism at the REIT about the skilled space; in fact, there are some “skilled nursing opportunities” in the company’s $600 million pipeline, he noted.

The only skilled nursing tenant that ran into some problems was The Avamere Family of Companies, which went through a major software conversion in its ancillary companies — leading the company to take “eye off the ball a bit” when it came to the performance of those entities, Matros said.

Another challenge for Avamere is one that has been ongoing: low Medicaid rates in the state of Washington, Matros noted. The state is apparently contemplating an increase, but so far this year, 19 facilities have closed, or about 10% of facilities in the state.

This might lead to some buying opportunities for Avamere, he noted, but until it’s clear what will happen with Medicaid in Washington — and the overall PDPM landscape — both Sabra and Avamere will take a wait-and-see approach, Matros said.

Still, Matros emphasized that Sabra views Avamere as a solid operator, noting that their facility performance was stable and that the company’s founder, chair, and CEO Rick Miller has made several senior management changes and returned to running the company on a day-to-day basis.

A request for comment was not returned by Avamere as of press time.

“We view them as a very good operator, and we have no concerns about them going forward, and certainly no concerns relative to rent,” Matros said.

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