Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Practice Management News

Hospital Discharge Patterns Trouble Skilled Nursing Facilities

Operating margins and occupancy rates at skilled nursing facilities continue to fall as hospitals seek narrow networks of high-value post-acute care partners, an analysis showed.

Skilled nursing facilities and value-based reimbursement

Source: Thinkstock

By Jacqueline LaPointe

- Hospital discharge patterns under value-based reimbursement models are troubling the revenue cycles of skilled nursing facilities, causing operating margins and occupancy rates to significantly decline in 2016, consulting firm CliftonLarsonAllen (CLA) recently reported.

“Hospital behavior is changing, resulting in fewer hospitalizations and thereby fewer skilled nursing admissions,” CLA wrote. “Substitutions of care are driving a larger percentage of hospital discharges towards other sites of service, including home health. Hospitals and Medicare Advantage plans are expecting shorter lengths of stay. Together, these trends are reducing occupancy and profitability nationwide.”

Workforce shortages and increased regulatory scrutiny also contributed to rising operation costs for SNFs.

“In short, the operating environment for SNFs is difficult, and a growing number of SNFs are approaching insolvency,” the report stated.

Falling margins are a troubling sign of insolvency for SNFs nationwide, the report explained. The financial and quality metric data for over 15,000 Medicare-certified SNFs uncovered steep drops in median net margins for facilities across the nation.

READ MORE: How Palomar Health Created a High-Value Post-Acute Care Network

The median net margin for SNFs has been steadily declining since 2013. The average net margin decreased from 1.7 percent in 2013 to 1.6 percent in 2014 and 1.5 percent in 2015.

However, the median net margin fell to a low of 0.8 percent last year.

Median operating margins for SNFs followed a similar trend. The national median was relatively unchanged from 2013 to 2015, staying between 1.3 and 1.2 percent.

By 2016, the median operating margin for SNFs across the country dropped to 0.5 percent, less than half of the median performance a year ago.

“If this trend continues, the median SNF will experience negative operating margins in 2017,” CLA stated.

READ MORE: Importance of Post-Acute Alignment, Integration to Value-Based Care

In addition to falling margins, SNFs saw growing disparities between high- and low-performing facilities in terms of profitability margins. Net margins for the lowest performing SNFs decreased by 130 basis points between 2015 and 2016, while the highest performing facilities saw a 40-basis point reduction.

Low-performing SNFs also reported a significant drop in operating margins in 2016. The lowest-performing facilities in the 25th percentile saw median operating margins fall from negative 4.1 percent in 2015 to negative 5.5 percent a year later.

High-performing in the 75th percentile saw their median operating margins decrease from 5.9 percent in 2015 to 5.4 percent in 2016.

“The increased variation in profitability supports our assertion that referral patterns are changing – a greater number of referrals to a smaller number of providers,” the report explained. “If this trend continues at this rate – even for the next few years – the result could be consolidation, changes of ownership, and the emergence of two distinct categories of SNFs: one that receives the bulk of post-acute short-stays, and another that serves primarily long-term residents at a lower cost structure.”

Another disturbing sign for SNF revenue cycles is falling occupancy rates, CLA reported. The median occupancy percentage nationwide dropped 120 basis points, reaching an 85 percent occupancy rate in 2016.

READ MORE: Preparing the Healthcare Revenue Cycle for Value-Based Care

“As healthcare payment transitions to value-based reimbursement, physicians and hospitals are beginning to embrace care protocols that reduce overall healthcare spending,” read the report. “Such efforts are not only reducing per capita hospitalizations, but they are also resulting in substitutions for post-acute care. These influences, along with the increased proliferation of managed care, are reducing skilled nursing facility admissions and average lengths of stay.”

Like net and operating margin performance, occupancy rates also experienced a widening variation between high- and low-performing SNFs. The lowest-performing facilities in the 25th percentile reported a 170-basis point reduction in occupancy last year, while those in the 75th percentile only experienced a 50-basis point decrease.

Occupancy rate disparities are likely to worsen as hospitals develop post-acute care networks, the consulting firm elaborated.

Hospitals are responsible for the cost and quality of care under value-based reimbursement models even after the patient is discharged. Some models, like bundled payments, may extend the hospital’s accountability for just 30 to 90 days after discharge, while other models, like accountable care organizations, hold hospitals responsible for the health of a population for a whole performance period.

Ensuring hospital providers discharge patients to high-value post-acute care facilities is key to maximizing value-based reimbursement across alternative payment models.

But post-acute care networks could spell trouble for SNFs. Hospitals will refer their patients to a small number of SNFs, resulting in high-performing facilities receiving the majority of referrals. Low-performing SNFs may find their occupancy rates dramatically declining.

Improving care value is challenging for SNFs, CLA explained. Post-acute care facilities tend to have fewer data analytics capabilities than their acute counterparts.

Just 3 percent of long-term care providers have the data analytics needed to reduce healthcare costs and unnecessary hospital readmissions while ensuring the facility receives proper reimbursement, a recent Black Book survey showed.

Another 91 percent of post-acute care administrators also stated that their organizations have no budget for technology adoption or improvements in 2017.

Without the data analytics capabilities, SNFs will struggle to translate data into actionable insights to improve care value and profitability, CLA stated. But understanding how a SNF compares to its peers through benchmarking could jumpstart a SNF’s journey to quality and cost improvement.

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