Genesis CEO Hager Predicts Rehab-Heavy SNFs Will Fare Worst Under PDPM, Defends 10% Therapy Cost Cuts

Operators that have historically thrown all of their eggs into the therapy basket will fare worse than others under the new Medicare payment model for nursing homes, Genesis HealthCare (NYSE: GEN) CEO George Hager said Wednesday — and that includes a subset of his own facilities.

“Those providers that maybe pushed therapy, really high-end therapy buildings, I don’t think they do as well under PDPM,” Hager said during a presentation at Credit Suisse’s 28th Annual Healthcare Conference in Scottsdale, Ariz.

That logic extends to the company’s own PowerBack-branded rehab facilities, which do not have any Medicaid-reimbursed long-term care residents, Hager noted.

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“They are highly rehab-oriented buildings,” he said. “They don’t do as well as the rest of our buildings that are more traditional skilled nursing buildings with a more traditional mix of patients. I think you’ll see the industry having very, very different outcomes — some up, some down.”

The CEO’s comments came during a larger discussion of the skilled nursing industry, which he repeatedly characterized as ripe with Medicaid opportunity. In an era where strong occupancy numbers sit in the mid-80% range, Hager and Genesis chief financial officer Tom DiVittorio said, there’s serious upside to directly admitting Medicaid residents.

If Genesis were to add a single Medicaid-covered resident to its 360 facilities, according to DiVittorio, the Kennett Square, Pa.-based skilled nursing giant would see an instant $25 million boost to its top line.

“There’s a 15% built-in growth opportunity by adding just one long-term care patient to each one of our skilled nursing facilities, with plenty of capacity to do so,” DiVittorio said.

But the company has seen resistance on the building level. In bygone eras when 90% or more occupancy was the norm, facility administrators were generally discouraged from admitting long-term residents, Hager noted, largely due to a fear that they’d take up beds that could have been used for future higher-margin Medicare residents.

“That’s a very different thought process when you find yourself at 87%, where you have five percentage points of capacity unused, and virtually no incremental cost to add to that capacity,” Hager said. “But it’s been a long, hard battle, trying to get the operator to think about that long-term care patient, direct admit — but we’ve made some progress.

Hager also used the Credit Suisse platform to push back against criticism of Genesis’s decision to reduce its full-time therapy staff by just under 600 employees in the immediate wake of the PDPM transition. That move set off a wave of unease among therapists and advocates, who raised concerns about the layoffs leading to potential dips in care quality.

But Hager emphasized that the layoffs represented about 6% of the company’s overall therapy workforce — while the $30 million in PDPM cost reductions Genesis reported last week account for about 10% of total expenses.

“Some people think that’s a big number,” he said. “This is about a 10% reduction in the total cost of providing therapy in our own centers, so it’s not a 40% or 50% reduction.”

In addition, Hager claimed that the expense cuts won’t lead to any changes in overall care, an outcome that leaders have warned would result in swift — and perhaps deserved — reprisals from the Centers for Medicare & Medicaid Services (CMS).

“We’ve cut the total cost of providing therapy services by about 10% without impacting negatively the number of minutes provided to our patients,” he said. “We fully believe, and we’re tracking this closely, that the minutes of therapy provided to our patient population will be very, very similar to the minutes provided under the [former] RUG system.”

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