‘Not Sustainable With This Many Winners’: PDPM Gains May Be Higher Than Early Numbers Show

The early returns for the new Medicare payment model for nursing homes have been broadly positive, with multiple experts and operators pegging the revenue gains at a healthy but modest 5% to 6%.

But the actual gains may be higher than those numbers betray, and several experts predict some kind of eventual adjustment from the Centers for Medicare & Medicare Services (CMS).

“It’s just not sustainable with this many winners,” Luann Gutierrez, managing director at Greystone & Co., said during a Thursday panel discussion at the National Investment Center for Seniors Housing & Care (NIC) spring investment conference in San Diego.

During the lead-up to the new Patient-Driven Payment Model (PDPM), Gutierrez said, Greystone analyzed its book of 110 to 120 skilled nursing clients and predicted that there would be a mix of reimbursement winners and losers. But so far, five months into the new system, everyone is coming out ahead — and the New York City-based financial firm is treading carefully in its ongoing underwriting.

“I think one of the [biggest] disservices we could do is over-leverage a property right now, really give an overinflated value, when I think CMS is going to do something,” Gutierrez said.

CMS intended PDPM — a system that shifts incentives away from therapy volume and toward treating patient need — to be budget-neutral. That clearly has not been the case, with a variety of analyses showing steady per-day reimbursement gains for operators. Executives at publicly traded real estate investment trusts (REITs) and providers have also indicated early gains: Industry leader The Ensign Group (Nasdaq: ENSG), for instance, reported post-PDPM boosts of 3% to 6%.

The math isn’t quite that simple, with Ensign executives emphasizing that the gains represented only three months’ worth of data — as well as the overall result of a years-long move toward caring for higher-acuity residents, and not simply a PDPM bump.

“While we experienced a modest rate improvement in our first quarter under the new system, the lion’s share of our performance during the quarter is totally unrelated to the PDPM impact,” Ensign CEO Barry Port said during the company’s most recent earnings call. “We want to remind you all that this is just one quarter, and we believe it will take several more quarters to have a better sense of the long-term impact of PDPM.”

In addition, as Zimmet Healthcare Services Group chief innovation officer Steven Littlehale pointed out during the NIC discussion, the front-loading of payments for the first few days of a resident stay complicates the PDPM calculus significantly, as shorter lengths of stay drive up the per-day rates — while potentially still leading to lower episodic revenue.

That said, Littlehale warned that many of the operators reporting reasonable gains were supposed to have been net losers according to pre-PDPM estimates, indicating that their revenue boosts may be much larger than the early reporting implies.

“They were the folks already speeding down the highway — they were really aggressive in the RUG system with therapy and therapy minutes,” Littlehale said, referring to the now-defunct Resource Utilization Group (RUG) Medicare payment model.

So while Zimmet’s database shows an average gain of about 5.6%, according to Littlehale, there could be a bigger iceberg lurking below.

“I think when all is said and done, we’ll see much a higher PDPM uptick than the 5% or 6% that we’re having right now,” he said.

The question of when — and by how much — CMS will crack down on nursing home payments remains open, with American Health Care Association (AHCA) president and CEO Mark Parkinson striking an optimistic tone in an appearance last month at the eCap health care summit outside of Miami.

Citing both a lack of firm evidence of major therapy strategy shifts and the bureaucratic realities of CMS’s rule-making timelines, Parkinson predicted that any changes would be modest if they happened at all, likely not hitting the industry until the fall of 2021 at the earliest.

“We have seen what I’ve defined as a modest increase above budget-neutrality. It’s not budget-neutral, but it’s also not 2011,” Parkinson said, referring to the last major payment shift, which eventually led to serious action after revenues spiked north of 12%.

Littlehale did offer a few areas where adjustments could be forthcoming, noting fairly consistent payment rates for physical and occupational therapy — which in theory should be more variable based on precise resident need.

“That’ll be probably where CMS will focus, to add more sensitivity,” he said.

As for PDPM’s impact on quality outcomes — another major metric that the federal government could use in justifying Medicare payment adjustments — it’s simply too early to tell, the panelists agreed; given CMS’s six-month look-back period on quality measures, that data will likely soon begin trickling in over the coming months.

But for now, the focus for operators should be on accurately capturing resident conditions — and ensuring that residents’ care plans match the actual services they receive — in order to ensure bulletproof PDPM reporting.

“You have to have a care plan that supports it,” Dava Ashley, president of the California-based skilled nursing operator Covenant Care, said. “We have to have supporting documentation for the care that we’re delivering. We’ve been focused on that, [though] we haven’t seen the surveyors focus specifically on the PDPM piece.”