Executive Outlook: Skilled Nursing Providers Must ‘Adapt or Die’ in 2020

In the lead-up to the new year, Skilled Nursing News took a look back at the top stories of 2019, and made our best predictions about the trends that will shape — and potentially rock — the post-acute and long-term care space in 2020.

For these first business days of 2020, we decided to let the executives do the talking in our annual outlook feature.

Last month, we asked a wide swath of skilled nursing leaders — representing operators, investors, vendors, and consultants — to weigh in on the major challenges and opportunities they see for the year ahead. As in years past, we kept the prompt as general as possible, and allowed respondents to provide e-mailed responses in their own voices, which we’re presenting in two parts Thursday and Monday.

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As expected, the Patient-Driven Payment Model (PDPM) loomed large in our executives’ imaginations, as operators are currently poised to analyze the first significant crop of performance data under the new Medicare payment system. State-level Medicaid issues, such as the potential for more federal scrutiny on payment-boosting programs, will also play a major role in 2020, along with an ever-changing reimbursement landscape outside of traditional fee-for-service Medicare.

One of our participants, Concerto Renal Services founder and CEO Shimmy Meystel, put the directive for the new year in blunt terms: “The 2020 SNF landscape will require operators to adapt or die.”

George Hager, CEO, Genesis HealthCare

In the skilled nursing industry in 2020, I believe we will continue to see modest growth in census as demographic trends continue to move in a favorable direction across the industry.

Regarding PDPM, we continue to expect PDPM to be a positive for patients and providers. Under PDPM, a much broader array of patient characteristics and clinical needs, not just therapy, are taken into consideration, which better aligns payment with medical complexity. Under PDPM, I also expect more providers will offer higher-level clinical programming, such as cardiac, pulmonary, and higher-end dementia services.

In 2020, we are hopeful that the state Medicaid systems react more consistently to changes in the industry, particularly in those states where providers are in financial distress. With staffing shortages continuing to be a major concern across the industry, labor costs are continuing to rise. Both Medicare and Medicaid need to reflect these trends in their reimbursement rates so that providers can continue to improve quality and outcomes. New Mexico and Washington have both taken the lead and have positively reacted to changing dynamics in their states.

Finally, I think we will continue to see a robust M&A environment at the local and regional operator level. Local and regional operators will be able to use more cost-effective, non-recourse financing models to operate facilities. There will be a movement away from op-co/prop-co structure, as leases with annual escalators have proven difficult for providers.

Denise Gadomski, Partner, Plante Moran

2019 saw a whirlwind of change for post-acute providers, and we expect it to continue in 2020, particularly in the area of reimbursement.

First, we expect to see changes at several state Medicaid programs. Providers in states that have a cost-based reimbursed component will likely find their state department of Medicaid evaluating other non-cost-based reimbursement methodologies in an effort to reduce spending. On the flip side, states that are not cost-based may rebase more frequently due to provider pressure and facility closures. We also expect to see continued expansion of quality metrics being tied to funding.

As it relates to PDPM, we expect organizations to be adjusting their operational processes as needed to ensure they are maintaining an average Medicare rate prior to PDPM implementation. The Centers for Medicare & Medicaid Services (CMS) will be weighing in on any possible rate adjustments mid-year. While we have heard positive results thus far, don’t be surprised if overall rates are only slightly higher than under RUGs.

Heading into 2020, we should gain a better understanding of the new Medicaid Fiscal Accountability Regulation and its impact at the state level for provider bed tax, intergovernmental transfer (IGT), and Upper Payment Limit programs (UPL). As more becomes known, we expect some states may need to redesign their programs.

In addition, we’re closely watching how the Institutional Special Needs Plan (I-SNP) develops over the next year, as we expect this could be a game-changer for providers in this area.

Finally, we expect that lenders will focus on the provider revenue-cycle process and collection concerns. With the expansion of managed care and accountable care organizations, change of ownerships, and increasing complications related to billing, we’re seeing an increase both in days in accounts receivable and bad debt expense.

Kenneth Nichols, Chief Operating Officer, Bedrock Healthcare

In 2020, we believe we will see a much more continued focus on patient characteristics that affect PDPM. After all, this is truly how “patient-driven” is defined. Caring for more medically complex patients is also an outgrowth of the PDPM payment model — patients with joint replacements admitted to SNFs will have more complications and co-morbidities, without which they could have home health or outpatient rehab and circumvent the SNF stay altogether.

CMS will be looking closely at outcomes with changes in therapy delivery — and a shift from volume of services. The next steps with this endeavor with CMS will coincide with outcomes and adding patient satisfaction; this, we feel, will follow the SNF Value-Based Purchasing (SNF VBP) model and Quality Reporting Program (QRP). With that, we believe CMS will adjust/modify the payment model, and add an element for patient satisfaction or payment for performance. This reinforces the need to provide quality care and focus on patient-centered satisfaction as well.

In the end, all providers should continue to manage the day-to-day with the changes that have been implemented by CMS; however, they also must embrace and prepare for the future and anticipate additional changes as well as enhancements by CMS.

Shimmy Meystel, Founder & CEO, Concerto Renal Services

The 2020 SNF landscape will require operators to adapt or die, and I expect to see three trends demonstrating this.

First, operators will be more aggressive to distinguish their facilities as magnets for higher-acuity patients. PDPM will drive this, of course, but operators have to be smart with how they target such patients. Offering SNF dialysis will remain in vogue and undoubtedly increase in popularity, for good reason. It can be a simple and intuitive step to attract new admissions. However, smart operators will also appreciate that SNF dialysis is not a cure-all for all facilities, and only worthy of investment when supported by data and market analytics. Operators would do well to approach their aggressiveness more thoughtfully and methodically.

Second, real estate investment trusts (REITs) and other landlords will be increasingly driving operators’ ability to adapt. This is especially true in the context of capital investment. For instance, we’ve already seen REITs become more involved and supportive of operators seeking to develop an in-house dialysis program, often driving the process. While a healthy REIT/landlord-operator relationship has always been crucial to an operator’s success, operators enjoying more sophisticated REITs/landlords — i.e., those who understand the operational and clinical challenges facing SNFs — will have a disproportionate leg up in 2020. For operators seeking to offer dialysis or other attractive ancillary services requiring capital investment, they can either pave the way or stand in the way.

Third, we’ll naturally see more nursing home dialysis providers entering the market and a greater choice for operators. Look for such providers to double in 2020, given the dearth of current providers and clear impetus to keep up with competing operators offering these services.

The sustainability of these new providers getting into the SNF game, along with some of the current providers, remains to be seen. Over-saturation and a lack of SNF know-how may inevitably doom some. Conversely, those nursing home dialysis providers who partner with facilities, seeking to integrate their processes with the SNF’s, will be poised to find eager and enthusiastic operators.

Babak Amali, President, Prodigy Rehabilitation Group

We are receiving a large volume of calls from various SNF operators who are very interested in converting their contract therapy to an in-house model.

Based on our conversations with these operators, there seem to be two major reasons for the heightened interest: The first one is that the SNF operators are realizing therapy is now a cost center, and they want to take control of their own expenses. It is no longer the main revenue-generating department. They want to focus more on their nursing department, Minimum Data Set (MDS) coding, and the ICD-10 coding. The second reason appears to be the excess of therapists that are starting to flood the labor market.

From our own experience of hiring therapists for various SNFs, the numbers you have published are most likely on the lower end of the reality. [[Editor’s note: Amali is referring to an October report about Genesis HealthCare laying off 585 therapists, as well as anecdotal reports of staffing reductions at other companies throughout the industry.]]

Not many companies will come out and say how many staff members they have laid off, because that would create anxiety among their staff, and that would not be beneficial to them. Genesis HealthCare is a publicly traded company and would have had to, at some point, clearly explain to their shareholders what they were doing. They would have had no choice.

But there are many other local and regional companies that will not publicly admit the accurate number of staff they have laid off, nor how many full-time staff with benefits they have laid off — just to turn around and hire them back as PRN, and load them up with mandatory group and concurrent treatment requirements.

The week of Thanksgiving, we advertised for PT, OT, ST, and assistant positions for a Northern California client that is converting their therapy department to an in-house model. Within 48 hours, we had several qualified candidates sending us their resumes and calling us directly for full-time positions. They presented two main reasons for looking for another job: Their status was changed to PRN from full-time, but they did not get any hours, and/or they had to travel to several different facilities, some a couple of hours away, to get their hours. In their words, this all began mid-September.

Up to this point, receiving a response from qualified candidates just by placing a simple advertisement online was almost impossible and unheard of. It used to be: “Who will pay the most?” But it is a different world out there now. More therapists entering the labor market has already led to lower wages and benefit cuts for the therapists. So the page will turn to: “Who’s going to take the least dollars for the same job?”

We are confident that once therapy companies have three months’ worth of financial data, and have the opportunity to analyze their data, they will make further adjustments to their workforce. That is when we will see the second waves of mass layoffs, more benefit cuts, and lower wages.

Companies will have to focus on the outcome — which means that the most qualified therapists, those who are at the top of their clinical game, will continue to have jobs. Because one thing is for sure: the patients will still be there, and they will continue to require therapy.

Some answers have been condensed and edited for clarity. Maggie Flynn contributed reporting to this story.

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