‘Custodial Care Rates’: Avamere, FPACP, LeadingAge Execs on Mitigating Headaches Tied to Medicare Advantage Plans

Managed care’s growth across all health care settings, including nursing homes, has pushed reimbursement rates lower, and operators are implementing strategies to counter the situation. 

For starters, operators expressed the need to be well equipped for negotiating better rates with managed care organizations (MAOs). And, coming armed with cost of care data to the negotiating table as well as having a dedicated team member involved in such negotiations is key, industry leaders said. Moreover, adjusting staff to take on additional administrative work associated with managed care is a prudent move as well.

All this is to prepare for the even greater managed care penetration, which has reimbursed operators at rates that are much lower today compared to a decade ago, with services being compensated at levels far below their cost.


Maggie Hilty Katz, vice president of Business Development at Oregon-based Avamere Living, said Medicare Advantage penetration is “really high” at 67% to 70% in some areas where Avamere operates, for example, and that’s going to be more of the norm in future.

When it comes to how that’s affecting revenue streams and basic operations, operators have and will continue to see lower lengths of stay tied to managed care plans. This means that operators will need to admit more people to maintain the same census and occupancy numbers, and in turn maintain the same revenue, she said.

Hilty Katz spoke about managed care and revenue streams during the latest Skilled Nursing News webinar. She was joined by fellow panelists Kristal Prather, vice president of Clinical Reimbursement for Texas-based Focused Post Acute Care Partners (FPACP), and Nicole Fallon, vice president of Integrated Services and Managed Care at LeadingAge, which represents nonprofit operators in the long-term care sector.


Unfavorable contracts: ‘Offering us custodial care rates’

Fallon said Medicare Advantage programs, for one, only pay between 60% to 80% of Medicare fee-for-service (FFS), or traditional Medicare, but it wasn’t always that way. About a decade ago, MA plans were paying nursing homes 105% of Medicare FFS.

“[Nursing homes] would be in an uproar when it went down to 100% of fee-for-service. It’s possible to pay us more. And they [will] still have profits at that point,” said Fallon.

While 60% to 80% is the average, some operators are doing better because of different arrangements they’ve entered into with MAOs. But, she’s increasingly hearing that MA plans in some markets are coming in and starting rate negotiations at Medicaid levels.

“Just think about that, how intense the services are, how medically complex the folks are that we’re serving on the Medicare side of things, and they’re offering us custodial care rates to care for that population,” said Fallon.

Some operators are pushing against lower rates by increasing their power to negotiate; this is being done through well-informed team members.

Prather said one of FPACP’s two case managers is also the person that gets its managed care contracts. The reason they only have two such positions is because a lot of their contracts only want to pay under $400 a day for skilled services. In other words, reimbursement plays a major role in how many staff members an operator can hire, and the types of positions too.

“Looking at the big picture, you know, that’s part of how we’re trying to manage [lower managed care reimbursement] is by, you know, only having the two case managers,” said Prather.

But the problems with managed care’s involvement extend beyond the negotiating table. On top of unfavorable contracts out the gate, operators are also seeing plans squeeze revenues not only on the rate side, but also by reducing the number of days for a SNF stay in addition to skipping SNF care altogether.

“And then there’s substituting care on top of it. Sometimes they will just bypass the skilled nursing facility and go straight to home health, or send the person home and hope that their family is going to take care of them,” said Fallon. “There are a lot of financial pressures right now.”

Moreover, a managed care representative will frequently oversee care coordination as well, either on their own or in conjunction with providers, and that adds to operational challenges.

“When it comes to the data and details, the paperwork process, working with an MA plan … you have your authorizations, you have your ‘head in bed’ notifications, utilization review management,” said Hilty Katz. “With all of these things you’re now involving another person to do that. If you don’t do it right, or do it how your contract says you need to do it, you’re at risk for actually not even getting paid for that stay at all.”

And, this situation gets more and more complicated as operators contract with different MA plans.

Optimizing managed care contracts

There’s a desperate need for data and risk knowledge to optimize managed care contracts – including the best possible reimbursement rates – while also auditing MCOs throughout 2022 to ensure compliance with new regulations. This is especially true for those having to do with Medicare Advantage (MA) plans.

Fallon said operators should be looking at the costs associated with care and comparing that with how much managed care plans are offering to pay.

“What’s interesting is there’s CNA costs, there’s RN costs in all of the payment sources in all the services that we deliver, but we see those increased costs coming from those prior authorizations,” said Fallon.

Meaning, time and money is going into the extra labor associated with administrative headaches like obtaining prior authorizations, commonly associated with Medicare Advantage.

Interdisciplinary teams are coming together to provide needed documentation. If a claim gets kicked back out, is denied or a portion of it is denied, an RN is spending their valuable time sitting on the phone with the managed care plan for hours trying to get prior authorization, and beyond that, spending more time trying to extend services since plans only approve a minimal number of days at SNFs.

“We’re having to hire more people just to manage all of the paperwork. Even after we get those prior authorizations, after we’re providing care for the person, now we’ve got to ask for a continuation for more days of service, because they’ll only approve a short period of time, maybe seven days, 12 days,” said Fallon.

And after all this hassle, even if prior authorization is obtained, the managed care plan could still deny payment and then there’s more labor costs with the billing department and clinical team, she added.

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