New risks in senior living

Skilled nursing facilities and other senior living facilities that offer post-acute care are facing a rapidly changing and uncertain competitive landscape.

One thing, though, is certain: the traditional fee-for-service model, where Medicare or a private payer assume the risks, will soon go the way of the rotary phone. Value-based payment programs and performance metrics will shift the risk to post-acute providers.

Post-acute care providers face other challenges as well:

• Patients are being discharged sooner from hospitals, meaning that skilled nursing facilities receive sicker patients who require more (and more skilled) care
• Organizations are facing two types of contracts: managed care (with very different fee-for-service rate structures than Medicaid) and value-based care arrangements, both of which involve risk  
• Potential referral sources are increasingly using performance-based metrics to select preferred post-acute care providers

In short, to survive and thrive, organizations must be able to measure, support, and improve relevant quality measures.

Preparing for upcoming risks

Skilled nursing facilities will become increasingly dependent on upstream referral sources, such as hospitals, and will face increasing competition to gain those referrals.

Those referral sources will place an increasing emphasis on the facility’s ability to capture and analyze key data and measure performance against industry standard metrics, such as the Medicare Star ratings.  A key component will be the previous three years’ annual survey, with the more recent carrying the most weight.

Hospitals will be tracking the following factors, amongst others, when evaluating a potential referral partner:

• Length of stay
• Readmission rates, including 30-day readmissions and 30-day preventable readmissions
• Star ratings (typically, a rating of 3 or higher)

But that data isn’t the only data an organization should be collecting and analyzing. Organizations should also conduct an in-depth financial analysis, or bring in a knowledgeable third party, to understand the true, internal costs of providing every service as it relates to contracted rate structures under consideration by the facility.

Do the per diems of an upcoming contract fully cover the costs of providing the services that patients will require? Are there ways to increase efficiency and reduce internal costs?

Being able to answer those questions with a high degree of confidence, based on in-depth financial analysis, is critical, as is demonstrating the ability to efficiently coordinate care and manage clinical programs.

The time to conduct this internal data collection and analysis is now, to prepare for risks that will become part of the senior health landscape within the next two fiscal years.

Conducting internal reviews

Building a value proposition begins with reviewing every department and function. The goal is to demonstrate to a referral source that the organization is effective, efficient, and capable of producing measurable results that benefit patients.

Many skilled nursing facilities rarely, if ever, conduct comprehensive internal reviews. But hospitals will want to know key metrics, such as 30-, 60-, and 90-day readmission rates and average length of stay. They’ll want to know how providers manage and care for patients, which will result in lower rates and, more importantly, what monitoring and processes are in place to ensure those rates will remain steady or improve.

Whether done completely in-house or with the aid of a third-party expert, those reviews should include the following:

• Clinical pathways
• IT capabilities, security, and ability to seamlessly share data and other operations with partners
• Human resources, including an evaluation of the corporate culture
• Financial reporting and systems to support daily operations, decision-making and contract negotiation and analysis
• Current relationships and partnerships, including referrals and financial arrangements
• Care management capabilities
• Annual mock surveys based on state and federal requirements

The results of those reviews should show potential referral sources that an organization does more than render services. The goal is to position the skilled nursing facility as a chronic care “case manager” that will extend a hospital’s level of care and improve its quality-of-care metrics.

Building a value proposition

An organization’s value proposition is a series of quantifiable benefits that can be used to attract and retain referral partners, such as hospitals. That value proposition can also be used to support both managed care and value-based contracts.

A strong value proposition should incorporate the following:

• Medicare Star ratings, the most widely used quality metric by both government and private payers
• Readmission rates broken down by medical conditions and other factors
• Diagnosis-defined clinical pathways
• The skilled nursing facility’s financial stability
• Chronic care management capabilities
• Bundled payment program participation

The ability to demonstrate measurable value to prospective partners will enhance a skilled nursing facility’s appeal and negotiation strength in preferred provider arrangements.                  

Preparing for both managed care and value-based contracts

Although managed care and value-based contracts apportion risks among hospitals, payers, and downstream providers in different ways, many of the same strategies address the requirements of both. Those strategies include the following:

• Review all existing contracts and proposals, including financial arrangements and performance expectations
• Understand the internal costs of providing all individual services
• Use internal analyses, conducted by staff or a third party, to find efficiencies and ways to streamline processes
• Define service levels and development templates for services
• Understand the different reimbursement models and programs that are common in the organization’s state or region
• Develop rates to ensure appropriate margins for all services

Finally, organizations should consider exploring potential partnerships, affiliations, mergers, or acquisitions. Depending upon the results of internal analyses and the surrounding competitive landscape, survival and profitability may dictate one or more of those business models. With hospitals, Medicare and private payers shifting the risk to post-acute care providers, smaller operations may not be able to survive in their present form.

Next steps

To prepare for the impending paradigm shift in the post-acute care space, senior living organizations with skilled nursing facilities need to develop a plan to understand their current level of risk readiness. Done correctly, results of this assessment can help organizations define critical action steps to help prepare for new reimbursement models and operations. This insight will also help them explore and negotiate potential preferred provider arrangements.

Finally, post-acute care providers need to review existing contracts and evaluate new contracts, armed with detailed knowledge of their legal obligations and their internal costs. If an organization lacks internal resources or doesn’t have a thorough understanding of best practices, the expertise and perspective of a third party can be invaluable.

Risks will continue to shift towards post-acute care providers. The key to survival and growth is to prepare for those upcoming risks now.

For more information on this topic, or to learn how Baker Tilly healthcare specialists can help, contact our team.