Why 2020 Could Be the Year of PDPM Exits — and the Skilled Nursing-Led ACO

The consulting firm Avalere Health, based in Washington, D.C., has had a front-row seat for the changes shaping the health care world, including the post-acute sphere.

For skilled nursing facilities, many of those changes have felt like one punch after another, ranging from the rise of Medicare Advantage enrollment to the federal government’s encouragement of care models that have incentivized to health providers to cut SNFs out of the picture altogether.

Fred Bentley, managing director at Avalere Health, has seen firsthand what those changes can do to SNFs. But he also has an eye on how the leading providers are thinking about the challenges, responding to the needs of their referral partners — and, in some cases, striking out on their own as a payer.

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Bentley joined SNN’s “Rethink” podcast to talk about why some SNFs are looking at launching their own accountable care organizations, how the Patient-Driven Payment Model could bring about operator exits, and why the rise of managed long-term supports and services in Medicaid could be the next major challenge.

Below are excerpts from that conversation, edited for length and clarity. You can listen to the full episode now, and if you like what you hear, subscribe to “Rethink” on Apple Podcasts, Google Play and Soundcloud.

Can you talk about some of the work Avalere’s done with skilled nursing clients, and what you’re seeing from them heading into the new year?

We’re a D.C.-based firm that’s been around for actually 20 years, starting next year. We have been in the post-acute space for all 20 years; our first client was Kindred Healthcare, many moons ago. And we continue to work with them, but we serve the entire continuum of post-acute providers. But we really have focused on skilled nursing for the better part of our company’s history.

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Some of the work is the big-picture: “Help us think through what’s going to happen over the next three to five years. How is the policy landscape going to shift? What’s going on with market dynamics? What’s happening with our upstream partners? What are hospitals and health systems thinking about?”

Questions on everybody’s mind.

Yes indeed, as always. It’s still the lifeblood of SNFs — our hospitals and health systems. We do a lot of strategic planning work … and more recently, we’ve done a lot more analytic work. Not to sound like an infomercial, but we have access to a massive treasure trove of claims data. So we are helping our clients do everything from understand their market share, how their market share has shifted, referral patterns, how they stack up against the competition.

I think some of the most exciting work is thinking about how could these SNFs — could they launch an ACO or partner with physicians to launch their own accountable care organization or launch an [Institutional Special Needs Plan]?

On the ACO front, is there a lot of interest in doing that? They have something of a bad rap in the skilled nursing world.

They absolutely do, and I think in many of those instances, it’s well deserved. At a high level, it is absolutely the case that ACOs have been hammering SNFs and really looking at skilled nursing as an opportunity for savings, either by diverting patients to home with home health, or no post-acute benefits, or really chiseling away at length of stay.

I was just a conference co-presenting with an ACO executive, and somebody from the audience asked, “What’s your view on post-acute care?” And he said, “Oh, well, you know, skilled nursing has been a great opportunity for us to capture savings.” And I winced at that.

So all that to say: there is a bad rap there. By the same token, you look at the proliferation of ACOs and the fact that they have not been this flash-in-the-pan sort of phenomenon, fad. They are well entrenched … if anything, they’re going to be expanding.

So it does start to beg the question of: If you are a skilled nursing executive, say what you will about ACOs, but how do you engage with them? And for a subset of our larger, more sophisticated clients, skilled nursing clients, it is a question of: Could we launch an ACO? Could we partner with physicians and get more actively involved in actually running an ACO?

How big are these providers? And what kind of scale do you need to actually launch an ACO?

Most of them are multi-state, and they tend to have anywhere from 30 to 50 SNFs, if not more. Fairly sizable organizations. For an ACO, you have to have a minimum of 5,000 Medicare beneficiaries attributed to the physicians who are part of your ACO. And we believe — and the numbers bear this out — that you want to be closer to 8,000 attributed lives just so you have the scale, especially when we’re talking about patients who are being treated in nursing facilities. These are very complex, expensive beneficiaries, many of whom, despite your best efforts, will go to the ED, will get admitted, get readmitted. All the more reason that you need that kind of scale.

You put those numbers together, that really does winnow down the number of SNF chains that really could conceivably pull this off.

How long would that take to come to fruition? Should we expect it in 2020?

I would anticipate a few of these organizations starting to launch ACOs in 2020. Genesis already has had an ACO for a little while now, so there’s a track record there. They have the benefit, obviously, of owning a very robust physician group, so that makes it a lot easier for them to launch. But again, we have a number of clients that are in conversations with physician groups.

What else should SNFs watch for next year? PDPM is obviously on everyone’s mind, but it’s also early days.

And it’s always fun to speculate at this time of year, because nobody’s going to listen back this time next year and call me on it! My impression with PDPM is that we are still early days. It’s been somewhat rocky, and I think some of this is just working out the administrative kinks of the program.

But what is going to happen in 2020? As I see it, with the clients that we work with, there are the SNF chains and the SNF organizations that got ahead of this, understood what was coming. They are not sweating right now, and I think they have adapted to the new world. Those organizations have already started and will continue looking at: “How much therapy do we provide? What is clinically appropriate now that we don’t have those powerful incentives to maximize therapy minutes? But we still have a duty to treat the patient and treat them as efficiently and effectively as possible. What is that right level?”

I still see for this big chains, some big movements around how much contract therapy they have and how much therapy they’re offering, and whether they want to bring that in-house or continue to outsource it. If you’re a contract therapy company, that’s a big, big deal.

There are going to be the smaller groups, though, that unfortunately did not get ready for this. And what is going to happen over the course of next year is a painful realization, for some sooner rather than later, of: The old clinical model, the old business model is not working anymore. They are also going to realize — and hopefully not too belatedly — that they really need to invest in documentation.

Now, that’s not a sexy topic to be speculating on, but it is absolutely something that unfortunately, I think a lot of the smaller organizations have been slow to hire up for that, and take that seriously.

Shifting to Medicaid, what should SNFs be thinking about with that program? It’s hard to speak too broadly because it varies from state to state, but do you have general advice or anything particularly interesting you’re seeing?

I wish I could say in 2020 that the rates will be jacked up, but that’s not true. Even in the best states, the reimbursement is below cost, and you are counting on that Medicare spend or Medicare rates to offset that, and make you whole. That dynamic doesn’t change.

It is a state-by-state view, and clearly no news to your listeners, but it is those states that are going to be facing the most challenging sort of budgetary situations that are going to be looking to Medicaid spend on nursing facilities.

I actually think, though, the bigger issue at play for a lot of the states that we’re working in is not so much reimbursement. It’s one of those perennial, sort of evergreen challenges. That’s not going away.

It is more of the states getting aggressive — either the states and/or the managed care organizations that they are contracting with through [managed long-term supports and services, MLTSS] — to divert patients away from nursing facilities and keep them in home and community-based settings. I think that’s the more existential challenge.

Do you think we’re going to see a lot more states moving into MLTSS?

Yes. I don’t know the numbers. I’d be hesitant to speculate on that … [but] with Medicaid, the vast majority of states have moved moms and babies into managed care.

An increasing number of states are starting to say: “Hey, we can move more complex, more vulnerable populations into this. The plans have demonstrated that they can arguably do this, and do it at lower cost.”

So yes, you put all that together — I think there will be continued efforts to move Medicaid beneficiaries, and beneficiaries in that long-term care program, into some kind of managed model.

And those managed care companies are going to be very aggressive about keeping patients [and] individuals in home and community-based settings for as long as possible.

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