PDPM Therapy Changes, Staff Reductions to Bring Genesis $30M in Annual Savings

Prior to the advent of the new Medicare payment model for skilled nursing facilities, Genesis HealthCare (NYSE: GEN) CEO George Hager predicted that his company would see expense reductions of 12% — primarily through an increased emphasis on group and concurrent services.

So far, at least according to Hager, the company has come through on that promise.

The Kennett Square, Pa.-based skilled nursing giant on Thursday announced that its cost savings under the Patient-Driven Payment Model (PDPM) have met expectations.

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“We have successfully met this goal, which should result in approximately $30 million of reduced annual operating costs for our Genesis centers,” Hager said during the company’s third-quarter earnings call with investors and analysts.

Hager first made a firm prediction on expense cuts at the RBC Capital Markets Global Healthcare Conference back in May.

“A $100,000 reduction in therapy cost per building is a meaningful improvement in margin if we’re accurate in our assessment that the top line is revenue-neutral,” Hager said at the time.

Thursday’s earnings update was the company’s first since revealing that it had laid off 585 therapy employees, or just about 6% of its therapist workforce, in the immediate wake of the PDPM transition on October 1.

That news, along with similar reports from companies and individual therapists across the country, set off a wave of anxiety among both workers and industry-watchers at large — in turn prompting leaders of trade groups to warn providers that the Centers for Medicare & Medicaid Services (CMS) would be intently watching for any changes in therapy practices that appeared to be profit-driven.

“If we don’t do better, we should be crushed by CMS,” American Health Care Association president and CEO Mark Parkinson said during an interview with SNN last month. “If therapy declines and outcomes decline, we deserve whatever penalty we get. But if therapy minutes decline and outcomes improve, we shouldn’t be criticized, in my view.”

That said, reducing therapy minutes was something of an inevitable outcome for PDPM, which was designed to shift provider incentives away from overall volume — a situation that the government claimed led to widespread fraud — and toward specific resident needs.

Hager pushed back on the profit-driven narrative Thursday, pointing to research that Genesis had conducted as part of its participation in the Bundled Payments for Care Improvement (BPCI) value-based care initiative before PDPM came into the picture.

“We did some research studies and found that appropriate use of group and concurrent therapy can actually be at least equal — if not better, or more efficacious — than one-on-one therapy in certain cases,” the CEO said.

Under PDPM, group and concurrent modalities can account for a maximum of 25% of each resident’s therapy plan, a figure that’s significantly higher than the roughly 1% seen under the former Resource Utilization Group (RUG) reimbursement system.

Hager’s view on the safety and effectiveness of group and concurrent therapy tracks with other voices in the skilled nursing industry.

“If asked to do group therapy and concurrent therapy, don’t just say no if you haven’t done it or don’t like to do it — or because you’re worried about it decreasing your hours of work; that’s not being patient-centered,” Ellen Strunk, owner and president of Rehab Resources & Consulting, Inc., said during a recent Skilled Nursing News webinar. “If there’s a clinical reason that the patient is not appropriate for group therapy, then we need to clinically justify that to our team.”

Hager acknowledged that the shift will come at the expense of some therapy jobs, and pointed out that the industry has already seen an almost complete evaporation in wage pressure around therapist positions.

“My guess is others did the same,” he said of therapist job cuts. “With lower staffing levels in the therapy gyms throughout the industry, I think that would ease any wage pressure, and that assessment is accurate. We don’t see any wage pressure whatsoever in the therapy side of the business.”

The PDPM shift is something of a double-edged sword for Genesis, which also runs a third-party contract therapy business. Along with the $30 million in expense reductions for its therapy centers, the Genesis Rehabilitation Services (GRS) arm will also see $30 million in revenue declines based on reworked contracts with its clients — though the company claims that associated expense cuts at GRS will wash out any effects of the top-line drop.

“Thus, Genesis continues to see PDPM as both positive for patients and accretive to the company,” the operator observed in its earnings release.

ACO success

The discussion of therapy shifts came as part of an overall positive earnings report from Genesis, which logged net income of $46.1 million during the third quarter of this year — a significant swing from the $58.1 million loss it recorded over the same span in 2018. The operator also remains in the black for the year so far, with total net income of $26.0 million, as compared to a $166.3 million loss through the first nine months of 2019.

Hager and chief financial officer Tom DiVittorio pointed to a variety of factors for the turnaround, including slowly improving census figures, an ongoing initiative to trim its portfolio in order to focus on its historic market centers east of the Mississippi River, and the success of its accountable care organization (ACO).

Genesis received $1.7 million in ACO-related payments from the Centers for Medicare & Medicaid Services (CMS) in the most recent quarter, a reward for meeting cost-cutting benchmarks as set under the Medicare Shared Savings Program (MSSP) for 2018.

While the company’s ACO had previously operated under a no-risk track, it entered into a risk-based arrangement for 2019, under which it can receive 75% of the shared savings with CMS — but will also be on the hook for 40% of any spending above pre-determined targets.

Hager was confident that the company will receive a bonus when the final 2019 reconciliation comes through, and also announced a push to expand its current enrollment of 6,400 Medicare beneficiaries beyond its own centers.

To that end, Genesis has rechristened the ACO as “LTC ACO,” Hager said, with a plan to “aggressively market” its services to long-term care facilities and clinicians outside of its footprint.

“We believe that the membership in our ACO can be significantly expanded, not only inside Genesis, but also more broadly throughout the SNF industry as we achieve positive patient outcomes as well as positive financial results.”

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