‘Reacting Much Faster Now’: Costs, Referral Bottlenecks Drive Hospital Decisions to Own, Sell or Partner with SNFs

Even as acute care systems are finding it harder to place patients in post-acute care facilities, hospital leaders have differing takes on whether it makes sense to own, sell or partner with facilities to relieve this bottleneck of referrals along the care continuum.

While skilled nursing care has historically made up a small fraction of the overall operations for a large health system, and not a large culprit behind losses, the pandemic changed that balance. Now in its aftermath, health systems with SNFs can expect to bear greater negative operating results, with labor challenges and exponentially increasing costs also impinging on profits at the forefront, according to Darrin Hull, executive vice president of consulting at Minneapolis-based Health Dimensions Group (HDG).

HDG manages 30 health care properties across seven states, and offers consulting services to post-acute, long-term care and senior living providers, along with hospitals and health systems across the country.

“Many hospital executives that would see a minor loss through the operations of their skilled nursing facilities are now seeing significant losses – and they’re reacting much faster now,” Hull told Skilled Nursing News.

Dealing with employees is another complicating factor impacting profitability of hospital systems that also own SNFs, Hull said. A standard approach in running the two different sides of the business – acute care and post-acute – means that employee benefits, workloads and salaries, among other factors, will also be varied.

“You’re fighting against yourself, if you’re trying to create a uniform approach to wage scales, benefits, things of that nature, and push that down into your skilled nursing,” noted Hull. “In most cases, you won’t be able to carry the weight of what that configuration looks like.”

In response to higher overhead costs, partnerships between hospitals and nursing homes are increasingly becoming the solution for acute care systems, Hull said. Or, hospitals are participating in bed reservation agreements in lieu of ownership.

Other hospital systems like Maine-based LincolnHealth have decided to invest in their nursing homes through new construction, while transferring operations to post-acute experts and keeping a hand in clinical oversight.

This is the best way to ensure they’re sustainable well into the future, according to Cindy Wade, president of LincolnHealth. LincolnHealth is one of nine local hospitals in Maine, run by not-for-profit integrated health system MaineHealth.

An investment in community SNFs

Licensing for SNF beds at LincolnHealth’s Cove Edge Nursing and Skilled Rehabilitation and long-term care and skilled nursing wings at St. Andrews Village are due to be transitioned to a development jointly owned by Portland developer Sandy River Company and SNF operator North Country Associates.

Sandy River is expected to be commissioned to build a 102-bed SNF, dubbed Clippership Landing, in Damariscotta, Maine for an estimated $45 million according to a report in the Portland Press Herald.

Drivers behind the decision to build new and transfer bed licenses came down to privacy as well as efforts to reduce overhead costs to the hospital. LincolnHealth had converted semi-private rooms to private rooms during the pandemic, but that only amounted to 12 private rooms across its two long-term care campuses.

“We needed newer facilities. We needed experts in order to have the right staffing models for the right number of beds, without the significant overhead of a hospital owning a long-term care facility,” said Wade, adding that the decision helps solidify the health system’s long-term care plans for the community well into the future.

North Country currently operates 23 locations in Maine and Massachusetts.

In 2021, LincolnHealth operated with a $4 million shortfall, according to a statement issued in February to the Maine Joint Standing Committee on Health and Human Services.

Still, the hospital wants to retain some rights, Wade said in an interview with the Boothbay Register at the time. Wade said the hospital plans to work with North Country on oversight of clinical care, as they run and maintain the facilities.

Sandy River is building more beds than LincolnHealth has occupied today at these facilities, Wade said. The new facility is due to accept residents starting in 2025.

“We have a purchase and sale agreement, a memorandum of understanding with this developer, that they are now doing due diligence and developing a certificate of need (CON), which we need in the state of Maine in order for them to get permission from the state to build a new facility,” said Wade.

Ultimately, LincolnHealth will shift its SNF bed licenses to the joint venture between Sandy River and North Country, along with patients and staff, to run the new facility.

“That’s what they do; their model has proven pretty successful,” said Wade. “This is the fourth MaineHealth facility that they’ve worked with on this model.”

The hospital system’s other long-term care facility, St. Andrew’s in Boothbay, will have its SNF beds absorbed into the new Damariscotta facility. Remaining at this location will be assisted living and memory care, independent living cottages and apartments.

The original plan was to see if a new facility could be developed with private rooms, but there wasn’t enough space on the property, Wade said in February.

Balancing overhead with a clinical control

For Hull, the decision for hospitals to own or partner in the SNF world comes down to really understanding what constraints facilities must operate under currently, in terms of reimbursement and regulatory compliance – and if those constraints are too much for the acute care system.

But, every time ownership of a SNF is relinquished, he said, a hospital system is giving up control of their population past the acute care setting.

Understanding what resources are available to SNF operators can help make a decision on partnering specifically, he added, while bed reservation agreements help maintain some degree of control for hospitals.

“We’re seeing success with hospitals looking to execute on bed reservation agreements with their non-affiliated partner, skilled nursing facilities, which mitigates a lot of the risks associated with taking bold steps to take that higher acuity, high financial risk patient,” said Hull.

An example of a bed reservation agreement, he said, would be backing up or ensuring payment for services for any new admission to a skilled nursing facility, if the SNF is not able to secure a payer for that resident. The hospital would then back them up and cover that expense, Hull said.

Other contractual arrangements could be more geared toward staffing, with the coordination of program development for the training and education of a partner SNF, or ensuring there’s additional medical personnel to allow admissions with higher acuity.

While these types of agreements aren’t completely foreign to either industry, they are not leveraged as frequently as they could be, Hull added.

It’s a scalable solution for hospitals and health systems, and could serve to support a decision to exit the skilled nursing space in terms of ownership.

“Some of this innovative work essentially can solve the problem for them without having to drain the resources and the time and attention that managing a skilled nursing facility brings to bear,” said Hull.