Nursing Home Use Down; Generational, Budget Shifts to Blame

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

Victoria Graham Washington Reporter Brian Broderick Washington Editor

By Victoria Graham

The fate of short-term rehabilitation centers, known as skilled nursing facilities, hovers in a state of limbo.

A combination of new payment systems that reward lower cost post-acute care has health providers striving to cut overall rehabilitation costs by keeping recovery treatments in hospitals or deferring rehabilitation to home care services.

The SNF market is also reacting to a generational cycle where baby boomers are considered healthier, needing fewer medical services and therefore fewer SNF stays.

Since 2009, there’s been a nearly 15 percent decline in the number of Medicare beneficiaries using skilled nursing facilities (SNFs), according to a report from Avalere Health, a Washington-based health-care consulting firm. Skilled nursing homes are a type of post-acute care facility staffed with registered nurses who provide a higher level of medical care than a traditional nursing home.

The reason for the drop in SNF use is multifaceted.

SNFs are buckling under the downturn in enrollment with large post-acute health-care providers, such as Genesis Healthcare, reporting multimillion-dollar losses due to low admission numbers. However, as the baby boomer generation progressively gets older, it is likely SNF demand will rebound.

Noticeable Drop

Since 2009, SNF utilization has dropped every year, according to Avalere’s report.

In 2009, “there were 1,808 SNF days per 1,000 Medicare fee-for-services (FFS) beneficiaries compared to only 1,539 in 2016,” the report, which was sponsored by Omega Healthcare Investors, one of the largest capital and financing providers in the long-term care industry, said.

SNF operators are feeling the brunt of such a decline. Genesis, which operates more than 60,000 beds across 34 states, reported a $75 million decline during a fourth quarter earnings call March 16. Forty percent of the reported decline was attributed to “organic contraction, principally caused by lower occupancy and skilled mix.”

Genesis, based in Orange County, Calif., experienced a 2.3 percent decline in patients admitted for skilled care for the fourth quarter of 2017 compared with fourth quarter 2016.

Observant Spending

Value-based payment models, which took hold under the Medicare Access and CHIP Reauthorization Act of 2015, are likely contributing to a decline in SNF stays as providers seek ways to cut costs which in turn takes SNF admission out of the total recovery equation.

Health-care providers are pulling in the reins on patient care spending to reap the benefits of new payment models, such as bundled payment systems and accountable care organizations, which reward providers if total medical costs are kept low. Providers could also risk financial liability under those payment models if medical costs exceed expectations, forcing them to make up the difference.

“Under new payment models like ACOs and bundled payments for hip and knee replacements, for example, the providers who are receiving the payment are now at risk,” Robert Berenson, a fellow at the Urban Institute in Washington who specializes in research on Medicare payment policy, told Bloomberg Law March 20.

“The lowest hanging fruit that most of the organizations have figured out is post-acute care,” Berenson, who previously served on the Medicare Payment Advisory Commission, said. MedPAC advises lawmakers on Medicare payment and coverage matters.

Typically a hospital or home health care service can provide high quality care that doesn’t come with the costs associated with SNFs. Through coordinated hospital and health-care service partnerships, health organizations can be accountable to one another to ensure costs are kept down. These models have resulted in fewer SNFs being factored into the patient recovery process, John Whitman, lecturer at University of Pennsylvania’s health-care management MBA program, told Bloomberg Law March 19.

Providers have figured out that SNFs can be bypassed altogether if patients receive an extra day or two of care in the hospital, he said.

Keeping a patient in the hospital, combined with continued physical therapy services both in the hospital and at home, can save a provider anywhere between $12,000 to $13,000 on the total expense of the stay, Whitman said. For the hospital, an extended stay can cost an extra $2,000 to $3,000 more, but it’s worth the small added costs in the grand scheme of the entire rehabilitation process, he said.

Shifting Away

Avalare’s research also noted that more patients are admitted to hospitals for observation stays, rather than inpatient stays, which makes a patient ineligible for a SNF following a hospital discharge.

“The economics of post-acute care have been fundamentally changed as Medicare shifts its payment approach to capitation, bundles, and pay for value,” Dan Mendelson, Avalere president, said in a press release.

Outside of hospitals, community-based care management programs, which are a type of ACO partnership serving Medicare patients, have been able to provide more efficient care without the use of SNF stays. Through these programs health-care professionals, clinics, hospitals, pharmacists, and other local health services establish a coordinated partnership to provide home care for patients.

Maxim Healthcare Services, a medical staffing company based in Maryland, has brought down patient readmission rates by over 65 percent for high-risk patients through the use of a community-based care management program.

“The community based care management program is a potential solution in that a full year of that program is roughly equal to the cost of an average 27-day SNF visit,” Andy Friedell, senior vice president of solutions and public affairs at Maxim Healthcare Services, told Bloomberg Law March 20 via email.

Generational Gap

Aside from greater cost of efficient care, a generational shift has resulted in fewer people needing SNF services, Berenson said.

“In 2011, the baby boomers started retiring, they are younger and healthier and they don’t need to go to SNFs,” he said. “So the denominator is healthier and therefore there are going to be a fewer number of people getting referred to skilled nursing home facilities.”

According to the U.S. Census Bureau, there are 76.4 million baby boomers who are currently between the ages of 54 and 72. Research into the overall health of the baby boomer generation has shown mixed results, with the American Medical Association stating in a 2013 report that baby boomers have higher rates of chronic diseases, but the generation has greater life expectancy rates and has suffered less from infectious diseases due to advances in medicine.

SNF Rebound

While alternative payment methods have succeeded in driving down the number of SNF stays, the demand for SNFs will rebound as baby boomers continue to age, Mike Cheek, senior vice president of reimbursement policy at the American Health Care Association, told Bloomberg Law March 19 in an email.

“First, our nation’s aging demographic trend truly will begin to hit around 2020 when the portion of Americans over age 85 increases considerably,” Cheek said. “Second, more older Americans will have multiple co-morbidities making their care more complex. Such trends will make discharging patients directly home very challenging.”

When baby boomers get older, common ailments such as strokes and heart attacks will become more prevalent and require rehabilitation via a SNF, Berenson said.

“The population will get older and will need SNF care,” he said.

But as baby boomers approach their golden years, it will be interesting to see how health-care providers react to higher SNF usage while keeping savings in mind, Berenson said.

“As more providers take financial risk they will be more concerned about trying to find lower cost post-acute services,” he said. “What the balance is on that and what the quality will be, I just don’t know.”

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law