As census rebounds across nursing homes, the growing influence – and financial strain – of Medicare Advantage is pushing providers to rethink both their payer mix and physical design of buildings.

While the industry is clearly moving toward Medicare Advantage and value-based care models – and making accommodations to balance quality care with reduced reimbursement – growing fee-for-service (FFS) patient base remains a critical part of the business model for some.

According to Andy Frasure, COO at Larry H. Miller Senior Health, his organization is maintaining its focus on increasing the share of FFS residents because of demographic projections.

“Operators across the country [need] to have a strategy for Medicare fee-for-service, and to have a plan in place on how to attract those patients and to bring maybe a higher quality mix into our facilities. The opportunity is there because the numbers are growing even in a world where we don’t have enough beds,” said Frasure. “[A]s we’re developing a managed care strategy and a quality mix strategy, it’s important that all of us recognize that our fee-for-service patients are increasing and that pie is getting larger and larger even as more are moving to managed care.”

Despite the rising percentage of beneficiaries choosing MA – currently around 55% – the absolute number of FFS patients is, in fact, rising due to the demographic wave of aging baby boomers. With 10,000 to 11,000 people becoming Medicare-eligible each day, Frasure said, he sees strong census numbers for the sector ahead, calling this an unprecedented opportunity for skilled nursing facilities (SNFs) to boost occupancy and attract higher-quality payer mixes.

Frasure, along with Steve Hart, COO of Heritage Operations Group – both of whom spoke at Skilled Nursing News’ recent RETHINK conference – acknowledged the problems associated with Medicare Advantage.

Medicare Advantage often comes with lower reimbursements than traditional Medicare, and managing MA patients typically requires more administrative effort, tighter care management.

That said, Medicare Advantage has its advantages and does provide reliable volume. And so providers are faced with no choice but to adjust, said Hart. This will lead to increased use of semi-private rooms at providers for their short-stay population, despite an overall preference for private rooms both from the care and resident preference standpoint, he said.

“[MA] is not as attractive, maybe, as it once was. And I think because of that, you’re going to see a shift maybe either in how beds are available – maybe it’s more semi private beds. Unfortunately, private rooms are really what the short-stay residents want and need,” Hart said.

Moreover, the MA margins are somewhat comparable to long-stay residents, which are typically covered by Medicaid, Hart said.

“Ultimately, there’s not a whole lot more margin in our long-stay product than [managed care or] Medicare Advantage once you factor everything in, and it’s a whole lot more work,” Hart said. “So, it’s a good volume to have.”

Hart and Frasure shared how their respective organizations are adapting to MA plans and the shift toward value-based care that has impacted payer mix decisions, care delivery models, and facility operations.

For Heritage, decisions around short-stay versus long-stay residents are often also based on urban versus rural setting, Hart said.

In urban areas with higher turnover potential, Heritage prioritizes short-stay admissions, aiming for a sustainable volume to keep census stable and beds full. In more rural facilities, where short-stay volume is less predictable, the focus shifts to long-term residents. Empty beds – especially unintentional ones – present significant operational and financial challenges.

“In some buildings we do a tremendous amount of short stay volume. In other buildings, maybe in a more rural area, their bread and butter is the long stay residents,” he said. “So overall, we focus on long stay when the short stay volume is either volatile or not there continuously.”

Problems with MA plans

Working with MA organizations is a mixed experience for Frasure, with inconsistency in relationships with MA plans. Some relationships are highly productive, while others create operational headaches, he said. Still, like it or not, he stressed that MA isn’t going away, and providers must engage with MA plans, ACOs, and preferred provider networks, while also positioning themselves to capture a growing share of FFS beneficiaries.

“Our operations are a little bit different in the types of patients – we admit and take a lot of Medicare fee-for-service,” Frasure said, adding, “We have entered into a lot of managed care contracts and relationships. Some have gone very successfully, others have been problematic for us.”

Value-based care’s importance

The simultaneous rise of value-based care is pushing operators to adjust how they manage partnerships across the health care continuum.

Frasure described a strong push within his organization to form VBC partnerships and enter into risk-sharing arrangements with other providers. The goal is to “control as much of the continuum as possible,” aligning operational decisions with quality metrics like readmission rates and overall cost reduction.

Hart and Frasure mentioned the growing importance of Institutional Special Needs Plans (I-SNPs) and other mechanisms that allow SNFs to participate in shared savings models.

Heritage is set on entering into value-based contracts and demonstrating consistent, measurable outcomes, said Hart. His team has begun making operational shifts, such as moving nutrition assessments from culinary to nursing staff, to improve outcomes like intake and hydration, which play an important role in recovery and readmissions. 

“Things like that that are relatively small, care focused and ultimately free,” said Hart. “[These] are things that we think will help build towards better outcomes in a value-based care world.”

And aside from delivering high-quality care themselves, SNFs should also help upstream partners – such as hospitals and MA plans – achieve their own value metrics. That means being proactive about building partnerships and driving care coordination.

“We recognize, as all skilled providers do, that we have to really add value and the value really is helping other providers achieve their quality metrics. Readmissions are the big driver, but also [important is] a reduction in episodic costs and annual costs of their beneficiaries,” said Frasure. “Ultimately to be a strong value based partner, we are going to have to execute on those quality metrics and to the extent that we can control, take responsibility, or have partners that have the same commitment and obligation … That’s the way that we’re gonna navigate through the future.”