A Month into PDPM, Breaking Down the Pros and Cons of Third-Party, In-House Therapy

About a month into the Patient-Driven Payment Model (PDPM) for skilled nursing facilities, operators are taking stock of reimbursement strategies — including how they are tracking clinical outcomes and overall margins.

Shifting from a third-party provider to an in-house model, or vice-versa, might also be part of that equation, though the answer isn’t quite straightforward. 

Leigh Lachney, vice president of business development at Therapy Management Corporation, broke down the upsides and downsides to each strategy on a Tuesday webinar designed to help providers decide whether to stay the course or make a change.


“This is not a pitch for either model. It’s what we’ve learned from a lot of dialogue in the past year with CEO’s, operators, panelists, and C-suite conferences in the past month,” Lachney said.

In addition to contract therapy, TMC provides consulting and other services across the health care continuum.

The goal is to give patients and families the “peace of mind that they are in the right place and receiving good care. Both models can provide these results if the processes are in place,” Lachney said.


Providers are asking how to effectively deliver therapy services when minutes no longer drive reimbursement, and wondering if they should go in-house or do contract therapy, Lachney said.

Lackney offered a pro-con list to facilitate the decision-making process.

In the “pro” category for maintaining in-house therapy, Lachney posited the benefits of keeping therapy services centralized:

  • Control over operational and clinical positions
  • Team cohesiveness, including selection and oversight of the therapy team
  • Continuity of care
  • No sharing of reimbursements

The “cons” category for in-house therapy includes:

  • Legal and financial risks
  • Clinical paradigm shift for therapists under PDPM, which can be challenging and time consuming with a learning curve
  • Recruiting and onboarding expenses
  • Additional costs related to payment denials, software licensing expenses, and staff development, including staying on top of the latest treatment interventions and updating clinical licenses

Possible upsides for choosing contract therapy include the ease of outsourcing management of the PDPM care model, risk-sharing opportunities, full-time and part-time recruiting and staffing of PRN employees, the inclusion of a reimbursement denial management program, and access to therapy software.

Conversely, choosing contract therapy may result in less control over operational and clinical decisions and the selection of staff, decreased team cohesiveness, and more of an isolated, individuated work mentality — with employees feeling like they’re working in silos — and less sharing of revenue.

Financial and clinical categories are key areas to be weighed when deciding between in-house therapy versus a third-party company, Lachney noted.

The average therapist’s salary ranges from $58,000 to $105,000 with benefits of 18% to 22%; for hourly employees, the average pay is $37.20 per hour. However, that “number will decline due to supply and demand as a result of PDPM. We did not lay off any therapists at TMC, but some of the major companies did,” Lachney told SNN in an e-mail.

Contract therapy generally costs 18% to 20% less than most in-house therapy programs from a labor standpoint, according to Lachney. That said, even in an in-house setting, operators must continue to consider additional costs pertaining to denials, recruiting, census development, and more.

Clinical considerations that affect financials should be taken into account under both models, Lachney observed. Being more aware of how therapy and nursing teams are working collaboratively to improve quality measures will help residents receive the best care. Noting how services are tracked, who is implementing clinical pathways, and how leaders determine the effectiveness of these pathways is also necessary to establish the clinical health of a facility.

In addition, choosing the most clinically appropriate group or concurrent therapy category is an important takeaway.

“How group versus concurrent therapy is handled may lead to potential CMS payback if you are not delivering the same level of care as in the past,” Lachney warned in the webinar.

Legal risks should also be factored into financial decision-making — include factors such as liability, compliance, billing codes, appropriate documentation, and HIPPA violations. Denials can cost anywhere between $400 to $3,100 per claim, Lachney noted, and while a 72% efficiency rate is considered a good margin under PDPM, but “most programs deliver 55% to 72% in efficiency. There are new risks for audits and recoupments to keep in mind.”

“You will lose your shirts in labor costs if you can’t reach your minimum efficiency,” Lachney warned listeners.

No matter what the final decision, Lachney stressed the importance of considering clinical outcomes while making the choice: Improving quality measures, implementing clinical pathways, and appropriate management of group and concurrent modalities should be at the top of operators’ minds.

In addition, in order to maintain a presence in the market, operators should consider developing a strong clinical niche — which includes identifying and addressing hospital pain points, according to Lachney.

“We are all on the PDPM journey together, and our goals are the same” — which is to be cost efficient while maintaining quality of care, Lachney said.

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