AHCA’s Parkinson: PDPM is Running Above Budget-Neutral, But Clawbacks Aren’t Inevitable

Early analyses of the new Medicare payment model for nursing homes indicate that operators may be pulling in more money than the federal government intended — leading to widespread speculation that adjustments could be coming sometime in 2020.

American Health Care Association (AHCA) president and CEO Mark Parkinson agrees with the idea that the Patient-Driven Payment Model (PDPM) is currently running slightly above the budget-neutral baseline.

But he also says the size of the gains will likely play into the Centers for Medicare & Medicaid Services’ (CMS) clawback calculus — and that he doesn’t see the same level of pain that the industry weathered during the last major payment shift ahead.


“My view is that if the increase that we see is just a few percent above budget-neutral, I don’t think that CMS will react in a 2021 payment rule, which will be proposed around May 1 of this year,” Parkinson told SNN in an interview this week. “I think that they would view that as possibly statistical noise, and more time would need to pass before there would be significant adjustments.”

In a wide-ranging interview, Parkinson also expressed serious concerns about CMS’s proposed crackdown on state-level supplemental Medicaid payment programs for nursing homes: “I don’t think there’s an adjective that you could use that would over-exaggerate the impact this rule would have on providers in those three states.”

In your view, what are the biggest skilled nursing challenges and opportunities for 2020?

On the challenge side, we have two big issues that we’re looking at right now — one of which is also an opportunity. Those two are PDPM, and how the rollout is going, and what — if any — changes will be made as a result of the rollout. And then the second big issue, which is a challenge, is the CMS Medicaid rule that would dramatically reduce the ability to have provider assessments and other intergovernmental transfers.


Those are the two challenges that we have in 2020.

On the opportunity side, I think PDPM is both a challenge and an opportunity, as we get more familiar with the new payment model. And then we continue to talk about Institutional Special Needs Plans — I-SNPs — and other risk-bearing arrangements that providers are really adopting, and what I think is the most exciting development in the sector.

Let’s start with PDPM. We’ve had leaders predict that clawbacks or other adjustments will be coming over the next year, as it may not be budget-neutral. What’s your sense of if — and when — PDPM changes will happen?

Let me first on PDPM congratulate CMS on two fronts: first, on developing what I think is a really good reimbursement system that is very good for patients. The old system was too dependent upon therapy, and we finally have a system where we’re able to really care for all of the needs of the patients — and CMS should be congratulated on that.

I would also congratulate them on the rollout. There are thousands of moving parts with PDPM. There are thousands of things that could have gone wrong, and CMS did a really good job at rolling this out and having the IT and other things that needed to be in place so that the new system will work.

On the “how is it going” side, we continue to believe it’s too early to tell. We’ve just finished three months. It will be another couple of months before we have good data on the cost and revenue side. It’ll be a few more months after that before we have patient outcome data, which is the most important thing.

I think it would be a huge mistake for CMS to make dramatic changes in PDPM until we really have the ability to figure out how the patients are doing under it. If the patients are having fantastic outcomes, it doesn’t make a lot of sense to make dramatic changes. If there’s areas where we’re finding shortcomings in patient care, then CMS is going to need to adapt PDPM to adjust to those types of realizations as well — and it’s just going to take some time.

Having said all that, the anecdotal information that we have after three months is that the system is working pretty well. On the patient outcome side — again, it’s anecdotal, but we’re hearing stories that residents are being taken care of; providers are getting good outcomes. And we’re really anxious to see a full data set to see if that’s true across the country.

On the business side of it — again, we don’t know for sure, but what we’re hearing from a smattering of providers is that they’re doing well on the revenue side. My view is that the current reimbursement is probably a little bit above budget-neutral.

I don’t think it’s anything like 2011, where there was a 12% increase in rates that had to be adjusted very dramatically. If there’s an increase, I think it’s going to be much more modest than that. We’ll have our first real data on that when the publicly traded companies start reporting — which will be here in just a few weeks. In early February, we’ll start to hear first-quarter data.

I think we’ll have a really good idea then as to: Where did CMS end relative to the budget neutrality situation? My view is that if the increase that we see is just a few percent above budget-neutral, I don’t think that CMS will react in a 2021 payment rule, which will be proposed around May 1 of this year. I think that they would view that as possibly statistical noise, and more time would need to pass before there would be significant adjustments.

On the other hand, if there’s an increase that showed, say, more than 4% or 5% above budget-neutral, I think it’s very likely that CMS will do what it did in 2011 and make an adjustment that would go into effect on October 1 of 2020.

There is also the possibility that CMS will wait a couple of quarters, really try to get more data on exactly what’s happening, and then issue an interim payment rule — which they could do at any time. They wouldn’t have to wait for the normal rule-making process where the new rates go into effect on October 1. They may want to say, “Hey, let’s wait six or nine months and get into the summer of 2020, see exactly how this is going — and if it looks like there’s a more-than-modest increase above budget-neutral, we’ll issue a rule then that will pare this back.”

So I would say that the range of outcomes would be all the way from CMS not doing anything, because the increase is not material; to it making some changes in the May 1 rule that would go into effect on October 1; or then possibly waiting until after May 1 to get more data and then releasing something in, let’s say, the late summer, early fall.

Staying with CMS, what’s your read on the push to crack down on supplemental Medicaid payment rules? We’ve been covering this story closely, and while I understand the desire to clarify the rules governing these programs — they can be incredibly difficult to parse — it’s looking like the consequences could be dire. What’s the best outcome of the proposal?

Well, the Medicaid rule really has a huge impact into two separate areas. The first is the area that you’re talking about right now, which are the intergovernmental transfers; that would have a dramatic impact on providers in Indiana, Utah, and Texas. And we agree with your statement that it does make sense for CMS to get more information on exactly how these programs work — how much money’s being paid, what the outcomes are for the residents, and all of that.

Our understanding, as CMS talked about this rule over the last two or three years, is that that is what this rule would do; it would seek just to get more information. Unfortunately, when the rule came out, it was much more dramatic than that. It not only seeks a bunch of information, it effectively stops the programs that are in those three states — and, in doing so, would have a devastating impact on providers.

I don’t think there’s an adjective that you could use that would over-exaggerate the impact this rule would have on providers in those three states. So what we hope the best outcome is that CMS will step back and listen to input that we and others will provide to it, and not finalize the rule — because I don’t think there’s a way to change or finalize this rule in a way that would be acceptable to folks in those states.

In the absence of that, we would encourage CMS to perhaps grandfather the existing states in, and if it really doesn’t like these programs, to then say: “If you’re in another state, you’re not going to be able to do this.” But to completely change the rules after these programs have been around for years and years, is just too much of a change to make. There are businesses that have been built, buildings that have been built, careers that have been built around these programs, which have year after year been approved by CMS. And to suddenly go into those three states and say, “Oh, you can’t do this anymore,” it’s not something that people can adapt to.

Then I guess the third thing that would be the least acceptable, but it’s better than nothing, would be if CMS would give us more time to adapt. Indiana and Utah, under the rule, are only given two years; Texas was given three years to try to backfill this money through their state legislators. And two years is just not enough. I mean, we’re talking about a material part of the reimbursement in those three states. I would say at a minimum, CMS should give those states five years for them to be able to figure out a plan B.

Really, at least for us, the only acceptable outcome is that CMS steps back, takes a deep breath, and just doesn’t do this.

The other part of the rule that is quite significant is the impact that it has on provider assessments. CMS is putting some parameters around how provider assessments can be implemented that, if the rule was finalized in its current form, would make the provider assessment in about half the states invalid.

Now, that’s not as bad as it might sound, because in a number of those states, we would be able to go into the state and make the provider assessment compliant with the CMS rule. But there’s about 10 or 12 states where getting into compliance would be really, really hard. So don’t sleep on the provider assessment part of this rule. It also is extremely significant, and we’re going to have to get some help on it as well.

What kind of work would need to be done in those 10 or 12 states? Would the existing rules basically have to be scrapped and built again from the ground up?

What CMS has said in this rule is that if a state is going to have a provider tax, every single provider of services that has any Medicaid resident in the building must pay the provider assessment, and they must pay it at the same rate as everyone else. In about half the states, the way that they were able to get the provider assessments passed is that they excluded either not-for-profit providers, or they excluded providers of continuing care retirement communities (CCRCs) from paying the tax.

Now, in some cases, they did it for policy reasons, but in most cases, they did it because politically that was the only way to get the provider assessment passed. And if you now suddenly have to go back into those states and say, “Okay, we’re going to become compliant with the CMS rule, and what that means is that everybody — including CCRCs — has to pay the provider assessment,” in those states where the CCRCs are particularly politically strong [it would be difficult].

An example would be the state of Arizona; it’s going to be really hard to get the provider assessment back on the books, because the CCRCs will fight it.

Correct me if I’m wrong, but it seems like this rule is progressing relatively quickly; CMS extended the comment deadline, but only by about two weeks. Do you have a sense of when CMS might introduce any changes or a final rule?

I think you’re right. I don’t think CMS did this intentionally, but by issuing the rule on November 17, they issued at a time where it’s been hard to galvanize the long-term care community into responding by the time of the comment period, which initially was going to end on January 17. They’ve now extended it to February 1, which has been really helpful.

I think we have had time to get the hundreds of buildings, and scores of interest groups that should care about this, to notice the rule and to submit comments. We do anticipate that, by the time February 1 rolls around, there will be hundreds, maybe even bleeding into the low thousands, of thoughtful comments to CMS about why this idea isn’t a good one.

In terms of when CMS would actually finalize this rule, it’s hard to say. Typically there is at least a 60-day period after comments are submitted before a rule is finalized. But in this case, this rule is so complicated and so far-reaching, impacting not just skilled nursing but impacting, in a very significant way, many other health care providers — particularly hospitals — that CMS is going to hear from a lot of people.

I would be surprised if this rule was finalized quickly. My hope would be that CMS would step back, take a deep breath, thoughtfully think about the impact of this rule, and take its time and not finalize it for a good period of time. But that’s something that we really don’t know. It could be as early as the spring that it’s finalized; it could be as late as never, and probably somewhere in between.

I wanted to touch on population health and I-SNPs, since you brought those up. I find Medicare Advantage to be a tricky topic when talking with skilled nursing providers, because I think there’s still a widespread feeling that it’s the enemy. What’s your outlook for I-SNP participation this year, as well as the adoption of other population health strategies for skilled nursing operators?

As you know, we’re really bullish on what’s happening in population health management, because finally providers are starting to take control. They’re doing that by being willing to take on the risk, and therefore achieve the same benefits that a Medicare Advantage company has been able to achieve.

I don’t know exactly how many additional I-SNPs there will be in the future, but I do think that every enlightened provider out there is aggressively analyzing their options right now — and so I do believe that the number of I-SNPs will continue to increase. I think it’s pretty remarkable that there are currently over 100,000 long-term care beneficiaries that are signed up in I-SNPs, when you think about the fact that on any given day there’s probably 1.1 million or so long-term care residents in our buildings, not counting the Medicare folks — to have over 100,000 of them already signed up in I-SNPs, that’s a material penetration.

I think the potential out there certainly exists for several hundred thousand of them to be signed up in I-SNPs. We’re really at the beginning of what could be a very big thing. Our members that started I-SNPs early on are starting to evolve, and are now looking at creating other sorts of special needs plans, and other sorts of plans where they take on risk — not just in their buildings, but in the community as a whole.

So I think that you will see some of the more sophisticated, aggressive operators almost starting to become insurance companies as time goes on — certainly still providing long-term care, but a major part of their business model being providing population health for large numbers of people, either in their building or in the physical geography of their buildings. I think that will be a big trend that you’ll see in the 2020s, and we’re very excited about it.

What are some of those opportunities for other special-needs plans? Are they D-SNPs, for dual-eligibles, or something else?

You see people evolving into D-SNP-type plans, people that are looking at the other types of special-needs plans for dementia and some other areas. There are four or five special-needs plans that CMS has approved, and an Institutional Special Needs Plan is just the beginning.

You see people thinking about: Why shouldn’t they be bidding on the Medicaid managed care contracts? Is it possible for a mass of providers to get together and become the managed care companies themselves? I think you’re going to continue to see that discussion and some real activity on that throughout the 2020s.