As hospitals delve into population health management, they are looking to control quality and costs in the post-acute setting—both through informal partnerships and formal mergers and acquisitions. Two major developments are making partnerships with skilled nursing facilities (SNFs) a strategic priority.
The first of these developments is the growth of the aging population. One report issued by the Congressional Budget Office notes that in 2010 about one in eight people age 85 or older (13 percent) resided in institutions, compared with 1 percent of people between the ages 65 and 74. a
The second development is the shift to value-based payment, particularly bundled payment and other shared-risk structures that require a network of acute care, post-acute care, and other providers to apportion a fixed fee for an episode of care that extends through all of the networks participants’ points of service (e.g., total joint replacement through 30 days post discharge). Despite recent delays to bundled payment initiatives launched by the Centers for Medicare & Medicaid Services (CMS) under the previous administration—including the agency’s effort to expand its bundled payment programs to include cardiac care—it is likely that hospital revenues tied to bundled payment will continue to increase over time. Although the current administration has not objected to the idea of bundled payment as a principle, Tom Price, the current secretary of the U.S. Department of Health & Human Services (HHS) has staunchly objected to making participation in such models mandatory. b
Research has shown that post-acute care accounts for a disproportionate share of Medicare spending. c Many hospitals are seeking greater influence and control over post-acute settings not only to avoid financial losses under bundled payment but also to prevent unnecessary emergency department (ED) visits and potential Medicare penalties due to excessive readmissions. One study found that almost one-fourth of Medicare patients discharged to SNFs were readmitted in 2006. d
As hospital leaders consider how to best control the quality and cost of care that their patients receive in SNFs, they are weighing the various options, which range from informal partnership to full ownership.
The best approach to developing a fruitful partnership with a SNF depends on a hospital’s market, comfort level with managing these facilities, and other factors.
Informal partnerships. To some extent, the number of SNFs in a hospital’s service area will dictate its partnership approach. In many metropolitan regions, hospitals and health systems can choose from a multitude of nursing facilities to recommend to their patients. Where there are such large supplies, hospitals have an advantage in negotiating preferred provider partnerships; the nursing facilities may even actively court hospitals to ensure continued referrals. In these more competitive markets, formal partnerships may not be needed for nursing facilities’ compliance with hospital requests to boost quality and prevent unnecessary readmissions and ED visits.
For instance, when determining which SNFs to include in its continuing care network, the Indianapolis-based Franciscan Health assembled a list of 20 SNFs to which the health system frequently discharged patients. Six of the 20 facilities were ultimately chosen to be in the network based on their quality scores and interest in participating. These six nursing homes track and share data on numerous performance metrics, including readmissions and catheter-associated urinary tract infections.
In addition, Franciscan Alliance’s accountable care organization hired a nurse care coordinator to manage all discharges to the six preferred SNFs. The care coordinator visits residents at the nursing facilities within 48 hours of their discharge from the hospital. A clinical nurse specialist was also hired to work with the six SNFs to improve processes and outcomes. e
Some hospitals and health systems are making additional demands on SNFs that express interest in being preferred providers, including the following:
- Requiring 24/7 coverage by registered nurses, versus the common practice of only having licensed practical nurses or certified nursing assistants available at night and on weekends
- Encouraging the use of evidence-based care pathways
- Involving hospital pharmacists in medication reconciliation for discharged patients
- Coordinating health information exchange to ensure seamless transitions and real-time reporting
Another growing trend is the use of post-hospitalists in post-acute care settings. Based on the hospitalist model, post-hospitalists assume responsibility for the care of residents who have complex care requirements , taking over for these residents’ regular physicians while the patients are in long-term care facilities. Although SNFs are required by CMS to have full-time medical directors to oversee all the care provided, they are not required to have physicians on staff to make rounds on residents. Typically, residents rely on their personal physicians to work with the facility’s nursing staff to plan their care.
Proponents of the post-hospitalist model argue that the acuity of nursing home residents’ conditions is rising as hospital lengths of stay shorten, requiring more diligent medical oversight. In some cases, hospitals are deploying their own hospitalists, as well as nurse practitioners and physician assistants, to work part-time in their partner SNFs. In other cases, SNFs are hiring or contracting with such specialists to deliver higher quality and lower costs.
Formal partnerships and ownership. There is a limit to what hospitals can demand from an informal partner. Many of the changes required to significantly improve transitions between acute and post-acute care, including additional clinical staff and IT integration, require significant investment. In addition, hospitals in rural areas and other markets with few SNFs may have a hard time even identifying facilities that meet their criteria to recommend to their patients. In such circumstances, hospital leaders may want to pursue some type of legal arrangement, ranging from a full acquisition of an SNF to a joint venture that gives the hospital an ownership stake in a new or existing facility.
Among the factors hospital leaders should consider when formally entering the post-acute care arena are whether to own and operate a SNF or to own and lease it to an experienced SNF operator. The additional cash flow from a SNF—which tend to have better margins than hospitals—is one reason to consider owning and operating the facility. However, it is critical to understand the ways operating a SNF differ from operating a hospital. A lack of expertise in operating SNFs is the primary reason that most hospital leaders have stuck with their core competency of operating in an acute care setting.
Another consideration is whether there are SNFs available in the hospital’s area that are interested in divesting. The number of independently owned facilities varies from state to state, and many investors—including public and private real estate investment trusts, private equity firms, and large operating chains—have been eager to get into the post-acute space. As of 2014, nursing facility chains owned at least half of SNFs in 38 states, with ownership by chains exceeding 75 percent in 13 states, including Georgia, Texas, Virginia, and Washington. Moreover, the majority of SNF owners are for-profits.
Staying alert to potential outside-of-the-box arrangements can help produce a win-win for all involved parties. For example, Memorial Medical Center, in Springfield, Ill., was able to acquire the independently owned and operated Regency Care facility, thanks to a joint venture with Heritage Enterprises, a large operator of SNFs and other seniors housing assets throughout the state.
Memorial Medical Center wanted to use the 99-bed Regency as its short-term rehabilitation facility, but several other buyers were interested in the facility because of its stellar reputation and positive payer mix. Regency had a low percentage of Medicaid patients and attracted commercial and Medicare patients due to its reputation for quality care and strong community presence.
Memorial Medical Center was able to enter into a joint venture with Heritage Enterprises to purchase Regency, and now leases the facility to Heritage to operate. This arrangement allows the hospital to have oversight of its patients after they are discharged to Regency without the need to get involved in daily operations.
For organizations considering a merger, joint venture, or acquisition, a number of financing options are available that offer alternatives to traditional bank loans and tax-exempt bond issues (see sidebar).
A Strategic Decision
As value-based payment continues to supersede fee-for service, the bottom line for a hospital is becoming increasingly tied to the cost and quality of the care delivered outside its doors in addition to that delivered in its walls. Hospitals that foresee a solid return in investment from financially investing in SNFs may benefit from a joint venture or acquisition, but many hospitals are in an enviable position of power over SNFs and can use the lure of additional referrals to influence SNFs to make the changes necessary to reduce readmissions and ED visits. It is critical for hospital leaders to assess their markets along with their core competencies to understand how best to strategically align with SNFs and keep up with changes in their payment structure.
Brad Competty is vice president, Lancaster Pollard, Columbus, Ohio, and a member of HFMA’s Wisconsin/Michigan Chapter.
a. CBO, Rising Demand for Long-Term Services and Supports for Elderly People , June 2013.
b. Cheney, C., “Medicare Delays Expansion of Bundled Payments Program,” HealthLeaders Media, March 22, 2017.
c. Chandra, A., Dalton, M., and Holmes, J., “Large Increases in Spending on Postacute Care in Medicare Point to the Potential for Cost Savings in These Settings,” Health Affairs, May 2013.
d. Mor, V., Intrator, O. Feng, Zhanlian, F., and Grabowski, D.C., “The Revolving Door of Rehospitalization from Skilled Nursing Facilities,” Health Affairs, January 2010.
e. Hegwer, L.R., “Bridging Acute and Post-Acute Care,” Leadership, Nov. 6, 2013.