Buy, Make, or Partner: Why Health Systems Continue to Target Skilled Nursing

The acquisition of the skilled nursing operator HCR ManorCare by the non-profit health system ProMedica rocked the skilled nursing world when it was announced in 2018, and many eyes have been on the marriage since.

Most industry observers took a wait-and-see approach to how the deal would play out, but some commented soon after the transaction was formally consummated that health systems partnering with post-acute care makes sense.

“People are getting a little more bullish and are expecting more health system deals in the future,” Ben Firestone, senior managing director at partner at Blueprint Healthcare Real Estate Advisors, said in an interview with Skilled Nursing News in 2018. “I think it’s going to take a while, but [the health systems] have a cost of care model that makes sense to partner with nursing homes again.”

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While nothing as splashy as the ProMedica-ManorCare acquisition has hit the market in recent times, more and more health systems are realizing they have to focus on the post-acute sector, according to Donna Cameron, a health care strategy partner at the consulting firm Guidehouse.

And though acquiring post-acute operations is not a common step, many hospitals and health systems have spent 2019 seriously thinking about their relationship to SNFs and to home health agencies — and 2020 is going to feature more of the same.

SNN caught up with Cameron — who spent the first half of her 37-year career in health care working as a clinician and an administrator in the post-acute care continuum, ranging from nursing homes to home health to long-term acute care — to talk about the state of relations between acute and post-acute care, whether hospital acquisitions of SNFs are on the table, and how SNFs can be ready.

Are there health systems searching for or looking at acquiring post-acute care? Why might they be interested in acquiring something in that part of the health . care sector?

It makes a lot of sense.

Many health systems and markets continue to be in a situation where some of their reimbursement is still fee-for-service, but they’re moving to value and that is accelerating at different paces.

At Guidehouse, I lead our post-acute care solutions, but I also am involved with our team that we call value transformation. And it really is something that I think’s influencing the very thing that you’re talking about. When you ask the question, “What’s driving this?” and when we look at what is influencing why health systems are more focused on post-acute care than ever before, some of this phenomenon is around payment transformation.

Maybe [the health system’s] first step is to get involved in a Medicare Bundled Payment for Care Improvement Advanced (BPCI Advanced) program, when they realize that 40% of the Medicare spend happens after the hospital discharge, including readmissions. So in order for them to be successful, thinking about that patient experience over a 90-day bundle, they begin to think what happens after the patient’s discharged from the hospital.

The other thing that’s happening quite a bit is shifts occurring in volume — so that patients are served in the most clinically appropriate, lowest-cost venue of care. So we’re seeing patients that historically went to SNFs now getting discharged to home health instead. We’re seeing changes in the Medicare reimbursement model, with the Patient-Driven Payment Model (PDPM) going into effect in October, and then home health having a reimbursement system that is beginning to say: Let’s look at what’s driving the care needs of the patient, and then how are we going to pay for that?

There continues to be shifts in how managed care and commercial payers are thinking about this, and putting utilization review and things in place to say: “Well, what’s the right place, right time per patient?” When all of those things are kind of converging at the same time — with the fact that the 65 and older population’s going to double by 2050 — I’m seeing a renewed focus on: What do patients experience after they leave the hospital, and what are they experiencing to stay out of the hospital?

They’re fundamentally coming back and saying: Do we need to own [post-acute]? Do we need to do some kind of partnership model related to it? Do we need to create some connectedness with a preferred network? But they’re asking the question, both in terms of: How do we think differently about the patient experience and include the full continuum?

But they’re also asking the question: If we buy it, is that a growth opportunity? That’s really what ProMedica thought about — if they diversified the business, they immediately had a footprint in multiple states.

There are other companies, like Kindred, that are joint-venturing with a lot of health systems and building brand-new rehab hospitals because those are arrangements that allow there to be a sharing of the capital investment to meet a need for a rehab hospital. But it also allows the health system to bring in a partner on that core business.

We’re seeing many health systems say, “The post-acute continuum is not where I want to invest my capital, but I need an integrated post-acute strategy.” So we’re seeing a lot of organizations partner with top-performing SNFs and home health facilities in their market, and creating what I call a post-acute care collaborative — so that there can be much more alignment around how quality and patient satisfaction and total cost of care is being managed.

You’ve mentioned that health systems don’t necessarily want to invest in post-acute care, so was the ProMedica transaction with ManorCare an outlier? Or are there other health systems that might be looking to make a similar move?

I think that’s going to continue to emerge as health systems think about their their strategy and what’s happening in their market. So for example, ProMedica and ManorCare were based in the same geographical market — matter of fact, their corporate offices are right across the street from each other. So there were relationships in that immediate market.

But by coming together, it really created a diversification and growth strategy for them, with ProMedica being a more regional health system; they now had a national footprint. But it also allowed them to align with an organization that they had historical relationships with.

For other health systems, the national health systems are looking: How do you organize across multiple markets that may be very diverse? And in some cases, they’re looking at: What do we want to do with a national post-acute strategy, versus thinking about it market by market?

And as I mentioned, I’m seeing a lot more activity with joint ventures that really create the opportunity to build a brand-new something that either entity may or may not have done independently. But by coming together, they bring together the synergies of their combined capabilities to serve a population, and then can do a project together.

So I don’t think that right now health systems are saying, “I immediately need to go out and think about buying post-acute.” I see more health systems saying, “Let’s take a thoughtful approach and look at each level of care on what our overall strategy needs to be.”

Maybe they already own their own home health agency, and they don’t own a SNF, but they’re thinking about joint-venturing an inpatient rehab. But they own all of their outpatient rehab. Many of them are looking at this based on: To create our overall strategy, what do we do for each type of post-acute care — make, buy, or partner the whole thing?

Are you seeing any joint ventures on the SNF side in particular?

I see really a couple of different models, [though] again, it varies based on what’s driving the strategy in a particular market. If the health system, for example, maybe owns one or more SNFs, a lot of times the question for the health system is that those may be older buildings.

What they start to see happening in the market is newer facilities that come into a market. They need to really start to ask the question based on their strategy: Do they invest in replacing that facility or upgrading that facility? Or do they bring in a partner to say, “How can we collectively look at SNF care in this market through some kind of a partnership arrangement?” So I am beginning to see that occur, especially for health systems that may own SNF beds.

Then we’re also seeing some hospitals that have seen declining inpatient census say: “What could I put in this empty space that would serve my patient population?” And rather than just saying, “Oh, why don’t we open a SNF?” — and again, there are nuances around certificate of need and other things — we’re kind of seeing a revisiting of hospital-based SNF units. Those grew very, very quickly when hospitals went to DRGs [diagnosis-related groups]; many of those units were referred to as transitional care units.

We’re seeing some hospitals that have capacity revisit: Is there a skilled nursing facility partner in my market that could operate a skilled nursing facility unit in on my hospital campus?

But again, it goes back to what is the problem or the opportunity that they’re trying to solve for? And that can vary so much from market to market.

If your driving strategy is that you are a new accountable care organization, and you know that you need to better manage the Medicare spend after hospital discharge, then that’s driving: How do we more closely align with the SNFs and the home health providers to look at clinically managing SNF lengths of stay in accordance with benchmarks — to look at home health, skilled home health, instead of a SNF, if that’s the most appropriate, lowest-cost level of care?

That may be a very different strategy than a health system with a trauma designation with a strong neurosciences program, with a certified stroke program sending its patients for acute rehab to a competitor or farther away. How do we offer a service at the gap? And then that may become a question of: How do we create a program?

If your strategy is growth, and you’re looking at your growth strategy, including something that is kind of out of the box — that’s where ProMedica said, “We have a relationship with a national post-acute provider.” And that immediately put them into you know, 27 states and 170 skilled nursing facilities and 108 home health and hospice. It immediately expanded their footprint, more as an atypical growth strategy, knowing that they would then have presence in markets that would forge potentially new relationships that they didn’t have otherwise.

I get the appeal of such an expansion, but it also seems like one that could be rather perilous, especially if you are going into a completely new area of the health care continuum as a health system.

I think the the health systems are thoughtfully thinking about what they’re good at. And if the health system has been more hospital-centric, and they have not historically been very deep in the post-acute business, they tend to be more interested in partnering or aligning with someone that they can bring in that core competency as they want to do this integrated strategy.

There are other health systems then made investments in post-acute care — home health, skilled nursing facilities and inpatient rehab and long-term acute care hospitals and outpatient rehab — that really are thinking: How do I offer this beyond my own patients, as a growth strategy?

We keep coming back to: What is the problem or opportunity you’re trying to solve for? And then how does that really guide you to a make, buy, [or] partner option that you look at? Then ultimately what’s happening in terms of how services are being paid for.

And as I see markets that are accelerating more quickly to value-based reimbursement models — particularly ACOs, and Medicare bundles and Medicare Advantage — we’re really seeing the necessity of this post-acute strategy getting much more refined and mobilized quickly to be successful.

How are the big national systems looking at this problem, given how local post-acute care — particularly in the SNF space — can be?

In some cases, the big systems are trying to organize and connect those providers across the country so that they can achieve some economies of scale, some standardization and some kind of resources that are available to all. In other cases, when they deploy those strategies — if a national system has hospitals that are in different places in terms of evolving value-based care, the imperative to do things that change managing care across the continuum will happen at different paces.

I’ve mentioned earlier about the how hospitals are forming the post-acute care collaboratives — kind of these networks of preferred partnership arrangements. That’s a very local phenomenon.

So I think the nuance of this, as the big systems are thinking about it, is it’s kind of like nationally organized and locally deployed. The factors that influence what happens at the local or regional level depend on really everything from payment models to competition to relationships with the post-acute providers, and even some of the dynamics around physician preferences and patient preference.

In terms of these conversations, are the hospitals and health systems the ones initiating the partnerships, or have SNFs or post-acute care proposed these types of collaborations?

It’s an interesting question, and I’ll start by saying: It depends. The larger post-acute companies are initiating a lot of these conversations, because as you look at something like Kindred’s strategy around joint-venture hospitals, this is a model they’re doing in multiple markets.

But as you look at a health system trying to figure out what to do in their local market, what’s fascinating to me is CMS has put the responsibility on the health system to start to figure this out in many of the payment models. The new models [such as BPCI Advanced] that are coming out from CMS aren’t putting that risk-reward accountability on the post-acute providers, but they clearly are part of the success in achieving the goals of the program.

How can SNFs prepare for the future, and be ready for these moves by their hospital and health system partners?

My advice would be to be communicating with the health systems from where they get their referrals, to have an understanding of what are those important drivers of the strategy — and to say, “How can we mutually come together to improve quality patient satisfaction and total cost of care?”

What that also means for the SNF in particular is: They are probably going to have to rethink some of their historical paradigms of how they provide care. For example, if a health system says, “Based on the industry benchmarks, we would expect a joint-replacement patient to be in your SNF this many days, and a [congestive heart failure] patient to be in your facility this many days,” the SNF needs to think through: How do we think about this differently, in a way that’s more clinically driven based on the patient’s condition and diagnosis and clinical parameters?

And that may be different than how they had done that before.

This interview has been condensed and edited.

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