Skilled nursing operators are trying to adjust to how the Covid-19 pandemic changed the care continuum, with patients now embarking on different pathways after hospital stays.
Not only are more patients going directly to home health, but long-term acute care hospitals (LTACHs) and inpatient rehabilitation facilities (IRFs) also have started to play more prominent roles — in some cases taking patients that otherwise would have gone to a SNF.
Indeed, while recent short-term trends may draw more patients to LTACHs, the growth of IRFs is seen by some industry execs as the far more concerning trend.
Encompass Health (NYSE: EHC), a leading provider of IRFs and home-based care, is currently separating its home health and hospice segment from its IRF segment, where the company has been growing and expects to see continued strength.
The company’s IRF segment increased 16.3% in adjusted EBITDA growth, executives said during the company’s most recent earnings call.
At 145 IRFs nationwide as of Dec. 31, Encompass opened eight de novo IRFs in 2021, adding 117 beds to existing hospitals. The nation’s leading IRF owner and operator plans to open 10 more in 2022, adding more than 100 beds to existing hospitals.
“We expect stakeholders will increasingly divert admissions away from skilled nursing facilities to higher value IRFs and home health providers. And as the population ages, the demand for our high-quality services will increase,” CEO Mark Tarr said during the company’s 2021 fourth quarter earnings call.
LTACHs ‘stepping up’
As hospitals across the country deal with capacity constraints brought on by the omicron variants, transitional care facilities, regional support sites and even LTACHs continue to be a relief valve to free up beds.
“LTACHs have definitely stepped up and I think have arguably demonstrated their value, [with hospitals] being able to offload some of these really complex cases,” said Fred Bentley, managing director at ATI Advisory.
While there is some blending of potential LTACH and SNF patient populations, Bentley sees LTACHs’ ventilator care capabilities as a differentiator.
“Some [SNF operators] have vent programs and maybe some of them have scaled up in markets where you didn’t have LTACHs to try and support that, but by and large, and certainly in those markets where there were LTACHs already in place, they have been managing that patient population,” he said.
Bentley does see some opportunity for SNFs to “fill a vacuum” in those markets where there are no LTACHs already in place, but he doesn’t think there’s a “supercharged demand” for LTACHs across the country.
“We’ve got a client in a market that does not have a LTACH, where the SNF said they were going to start a vent program, and that is a massive investment in skills, technology and infrastructure to support that,” he said. “I would argue for the LTACHs that are in place, they have a renewed lease on life or a renewed purpose.”
While Bentley doesn’t see much overlap between LTACHs and SNFs, the same can’t be said for IRFs.
“I think you could see some of those patients requiring more intensive rehab that are going into inpatient rehab facilities, potentially coming to SNFs,” he said. “I do see that there’s meaningful overlap between SNFs and inpatient rehab facilities and you could make the argument for SNFs to move into that more intensive rehab space in certain markets.”
SNFs battling IRFs
In particular, Bentley thinks there could be a bigger role for SNFs to serve complex post-operative cases that require significant rehabilitation post COVID.
That movement is already starting in some places, like Michigan, where a new post-acute care facility was established through a joint venture between a local hospital and nursing home. The goal is to fill a gap in the post-acute care continuum and offer transitional care to post-operative patients.
“I do think looking upstream at whether there are patients that SNFs could manage either now or with incremental investment and capabilities is the play,” Bentley said.
For Brian Cloch, principal at the Chicagoland-based skilled nursing facility owner/operator Innovative Health, IRFs are clearly bigger competitors than LTACHs.
“We’ll get a referral for a SNF patient, we’ll clinically qualify them, we’ll accept them and then we find out they went to an IRF,” Cloch said. “I can’t do what they’re doing [at our rates].”
He said IRFs inside hospitals, like the ones Encompass recently invested in, seem to be taking more “traditional SNF patients.”
“A lot of them are competing for SNF patients,” Cloch said. “If you look, as much as 30%-50% of patients in IRFs, I bet they could do just as well, if not better, in a SNF, for probably a third of the cost.”
Cloch said he “fights” and “battles” with IRFs for those patients.
“So we are competing with the inpatient rehab and clinically, we can do the same work,” he explained. “But when the referral source tells families their choices are to stay in the hospital and just go from floor three to floor two or go to a building down the street [it’s an easy choice].”
Still, a look at how many referrals the company has lost to other referral sources shows that it’s losing about 1% to LTACHs, 1.6% to acute rehabilitation and a much higher percentage, 12%, to home health, as the latter continues to be the competitor keeping most SNF owners up at night.
Partnering with home health
More than competing with LTACHs or IRFs, enhancing home health capabilities will be the name of the game for SNF operators in 2022.
Prior to Covid-19, about 18% to 20% of hospital patients were discharged to a SNF, with 15% to 16% going to home health. That flipped in March of 2020 as the pandemic began sweeping across the United States, with the change being so stark “you could probably zero in on the day” when it occurred, Bentley said.
Bentley said that home health is in the “catbird seat” and SNFs need to look to adjust accordingly.
“If I’m a SNF operator, I’ve lost some ground to home health, but there’s still a lot of conditions … a lot of types of patients coming out of hospitals who I’m well positioned to serve,” he explained.
He said the most classic example is the hip or knee patient who used to be a SNF’s bread-and-butter, but now is “increasingly going to home health.”
Increasing the acuity of new admissions has proven to be one way SNFs are adjusting to the rise of home health, but for Cloch, with SNF-at-home not yet a feasible model for his operation, partnering with home health entities has proven an advantageous way to go.
“We’d much rather align with a really good home health company that ‘gets it,’ because a lot of times they are thrilled to work with us,” he explained.
Cloch said that when home health companies get hospital referrals and show up at a person’s home, it becomes clear that the patient is better off going to a strategic inpatient facility like one of his SNFs.
“I think that combination is very powerful,” he said. “I think there’s been a lot of inappropriate referrals and discharges to home health from the hospital, and I think a lot of these home health companies are struggling even to get staff out.”
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