Home Health Heavyweight Encompass Sees Potential to Replace Skilled Nursing with IRFs Post-COVID

Widespread outbreaks of COVID-19 at skilled nursing facilities have increased calls to accelerate the shift to in-home care whenever possible, but one major home health provider took things a step further by floating the potential for replacing SNF care with stays at inpatient rehabilitation facilities (IRFs).

Speaking on the company’s second-quarter earnings call this week, Encompass Health Corporation (NYSE: EHC) CEO Mark Tarr specifically pointed to the coronavirus strain on skilled nursing facilities in describing the potential opportunity for a IRFs in a post-COVID world.

“From a post-acute perspective, the patients that we’re treating in our IRFs really cannot go directly home from the hospital,” Tarr said Tuesday. “They require an inpatient stay. So those patients, it becomes a choice between an IRF and SNF in almost all cases — and I would ask you for your opinion as to how the skilled nursing facilities have distinguished themselves during this pandemic.”

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The Birmingham, Ala.-based Encompass is the nation’s largest operator of IRFs with 136 facilities; its 245 home health locations makes the firm the fourth-largest Medicare provider in that space.

There were about 1,100 total IRFs across the country in 2019, according to the most recent post-acute analysis from the Medicare Payment Advisory Commission (MedPAC); for comparison, the same report logged more than 15,100 skilled nursing facilities nationwide.

Tarr was specifically responding to an analyst question about the outlook for alternative payment models such as the Comprehensive Care for Joint Replacement (CJR) and Bundled Payments for Care Improvement (BPCI) initiatives, which generally seek to lower episodic costs for both acute and subsequent post-acute care.

Historically, skilled nursing operators have been wary of such models, as they encourage shorter lengths of stay in the institutional setting in favor of lower-cost home health stays.

Because IRFs provide an higher level of care than the typical SNF, they represent an even more expensive option under bundled-payment structures: In 2018, the most recent year for which MedPAC had payment data, IRFs took in an average of about $7.2 million in Medicare fee-for-service reimbursements, compared with about $1.8 million per skilled nursing facility.

But in the wake of a pandemic that brought unprecedented numbers of infections and deaths to nursing home residents — with an official, and likely undercounted, death toll of more than 38,000 as of this week — coupling IRF and home health could represent both a clinical and financial improvement, Encompass chief financial officer Doug Coltharp said.

“What we have the opportunity to do is to move a patient between our IRFs and the home setting, and the opportunity to work with the IT investments that we’ve made, have that clinical collaboration,” Coltharp said. “And we’ve proven that we can get more patients back home to the home setting, and fewer readmissions back to acute care, which increases costs. I guess I would counter the implication — you said we’re a high-cost provider. I would say we’re actually a high-value provider when you look at it more from a longer-term perspective.”

The shift to home has been a long-standing trend in the post-acute space, driven both by a push toward value-based care among payers and overwhelming patient and family preference to avoid institutional settings.

With overall occupancy at nursing homes cratering and family members concerned about sending their loved ones into institutional facilities amid a pandemic that shows no sign of easing, home health leaders have already expressed optimism about the chance to siphon patients away from the traditional nursing homes.

“Even if everybody this time next year is on a vaccine, I think the idea of wanting to be home, to the safer, to be away from places of infection [will remain],” Paul Kusserow, CEO of home health giant Amedisys (Nasdaq: AMED), said during a late June virtual conference. “It’s going to be a long haul back for the SNFs.”

Tarr gave similar comments at a separate June event.

“I think the whole period of this pandemic helps to really put an exclamation point on our goals and our quality outcomes,” Tarr said during a virtual conference held by investment banking firm William Blair. “From a more global standpoint, it’s helped to point out the differences of the post-acute settings and how certain patients have much better outcomes.”

That said, it’s too early to quantify the shift of patients from the skilled nursing setting to home health, according to April Anthony, chief executive officer of Encompass’s home health and hospice arm.

Home health admissions from SNFs, independent living, and other brick-and-mortar settings are currently at about 70% of normal, Anthony said, though overall Medicare intake has recovered to around 98% — seemingly illustrating that Encompass is making up the difference with direct referrals.

“All of that would lead us to believe that we’re getting some SNF patients that we wouldn’t have otherwise gotten, particularly directly from physicians,” Anthony said.

Some of those referrals could have come from patients that would have otherwise gone to a SNF, executive vice president Barb Jacobsmeyer said.

“They found that many of the skilled facilities in the markets were hesitant to take them, especially if they were a recovering COVID [patient], or what we call a patient under investigation — meaning they had some sort of exposure to COVID,” Jacobsmeyer said. “Our ability to take those patients — and our outcomes have been really strong with those patients — has been something that I think has been a huge help to the acute-care referral sources, so that they could get those patients out of their hospitals and into our facilities.”

Coltharp also argued that the pandemic response has strengthened the company’s relationships with acute-care referral sources, and distinguished the IRF-home health combination from other options.

“We exercised our skills at taking the higher-acuity patient in both our home health as well as our hospitals. We have put ourselves in even more enviable position with our relationship with the acute-care hospitals,” he said. “I think that’s going to have long-term implications for us moving forward versus other post-acute providers that have tried or were unwilling to participate in a productive manner during this pandemic episode.”

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