Post-acute care integration should be a priority for your hospital

Every hospital and health system has a finite level of resources. Even throughout our firms' long consulting tenures, we have yet to run into one that has sufficient funding to take care of all of its immediate needs.

How investments in time and resources are prioritized are key to a sound organizational strategy. While over the last several years there has been an increased awareness by hospital and health system leadership teams of the importance of a thorough post-acute care (PAC) integration strategy (i.e., integrating information systems, standardizing care plans, managing patient transitions, aligning incentives), we have seen far too few instances of these strategies being developed and exectued. Many hospitals and health systems are developing networks that integrate physicians and are investing in population health analytics, which are all positive steps towards value-based delivery; however, we believe many of these organizations will not see the meaningful financial and patient care benefits of these initiatives for several more years. This is not the case with PAC integration. Given current market conditions we believe it is likely to immediately enhance the value to the patients and have a positive impact on hospitals' financials in the near-term.

The Current State of Post-Acute Care
Not unlike other sectors of the US healthcare system, the business model for PAC providers has been developed largely to maximize revenues from government and commercial payors. Experts in the field are in near unanimous agreement that existing payment models could be modified to enhance value to the consumer and lower costs for the payors. This is needed given the significant amount of spending that is occurring in this sector and PAC costs are some of Medicare's fastest rising costs. Nearly 17% of Medicare FFS dollars are spent on PAC services for skilled nursing facilities (SNFs), home health agencies (HHAs), inpatient rehabilitation facilities (IRFs), and long-term care hospitals (LTCHs).1

The variation in Medicare costs from market to market can be significant. For instance, according to CMS National Health Expenditure data, the per capita HHA costs in the state of Massachusetts were eight times higher than HHA costs in North Dakota.2 Uneven spending on post-acute care around the country accounts for 73 percent of the variation in Medicare spending according to an Institute of Medicine study from 2013.3

There is significant fragmentation across the PAC market. It is not uncommon for patients to be given a choice of 10 or more HHAs or SNFs as they are being discharged from their acute care hospital stay. In some markets like Texas, Louisiana, Massachusetts, and Florida there is a significantly higher supply of these services per capita than in other markets. In many cases, there is also a greater supply of higher levels of care, like IRFs and LTCHs. In these markets the per capita spend for PAC services is also higher.4 Supply induced demand is not the only variable that accounts for PAC costs being higher in select states, but it is certainly a driver. The figure below shows the number of PAC providers in existence compared to the roughly 5,000 acute care hospitals in the US.

Figure 1: Number of Post-Acute Providers in the US5

1Figure

Additionally, the variation of cost and quality of PAC providers within a market can vary significantly. Examples are provided below that show variation in readmission rates and allowed costs6 by SNF in Houston, TX and Boston, MA.

Figure 2: 2013 Allowed Cost vs. Readmission Rate for Total Joint Surgery in Houston, TX MSA for Medicare FFS Patients7

2Figure

Figure 3: 2013 Allowed Cost vs. Readmission Rate for Total Joint Surgery in Boston, MA MSA for Medicare FFS Patients8

3Figure

Figures 2 and 3 highlight how significantly cost and quality may vary among PAC providers in a market. According to the data, it is common for SNFs in these two markets to vary in allowed cost by 50% and readmission rates by 8% or more. Additionally, the data shows that it is possible for facilities to have both relatively low allowed costs and readmission rate – high costs and high quality don't have a direct correlation among SNFs in these regions. Finally, analysis of the data over consecutive years showed a strong correlation in costs and a weaker, but still positive correlation in readmission rates, suggesting that better performance by some providers was not due just to random fluctuation.

In examining the two graphs, it shows the Boston market has meaningfully lower average allowed cost and readmission rates, despite having higher Medicare FFS fee schedules for SNFs. This is quantified below in Figure 4. A number of factors play into Boston SNFs having on average lower cost and readmission rates for total joint surgery. These likely include higher volumes for each SNF in Boston (the data shows higher volume SNFs have lower costs and readmissions for this population), a lower percentage of patients coded with complications, better patient management and coordination occurring in a more progressive market, and a higher percentage of acute care hospitals taking meaningful financial risk that makes them accountable for the continuum patient care.

Figure 4: 2013 SNF Comparison for Medicare Total Joint Surgery in Boston, MA and Houston, TX MSAs9

4Figure

Payments for the different PAC providers can vary significantly, but researchers have found that the same types of patients can end up in different types of facilities for no apparent medical reason. Medicare can pay $4,000 - $5,000 more at an inpatient rehabilitation facility (IRF) than a SNF for a stroke patient or joint replacement. And despite a different intensity of services being provided, MedPAC maintains that patient outcomes are not consistently different to justify the payment differential. Using the Medicare 100% Part A file, we were able to highlight some differences in cost and readmission rates between the different levels of care. We recognize there is a need for the different types of care and a patient's acuity and home situation must be taken into account, but the data shows there is likely significant opportunity to reduce costs and readmission rates through the use of evidenced-based discharge planning that helps to ensure patients receive the right level of care.

Figure 4: National Joint Replacement and Post-acute Care Statistics (2012 – 2013)

5Figure

The Federal Government Pushing for Change
Congress passed the Improving Medicare Post-Acute Care Transformation Act (IMPACT Act) of 2014 with the goal of a uniform post-acute care assessment and data collection tool as a step towards the development of a post-acute care prospective payment system. This passage of the IMPACT Act was a result of CMS's significant year-over-year cost increases from PAC providers and the realization that CMS's models for reimbursement were incentivizing these behaviors. The IMPACT Act requires standardized data collection to begin October 1st of 2016 and ramp up over time. After years of data collection and analysis, MedPAC will make a recommendation for a prospective payment system on October 1, 2021. Prior to 2021, MedPAC recommends in its 2015 report that some steps can be taken now to eliminate differential payments for select conditions. Three conditions were identified where the outcomes relative to the care received in each care setting were not significant to warrant payment differentials. The conditions identified were: (1) rehabilitation after a stroke, (2) major joint replacements, and (3) other hip and femur procedures. Because of this legislation, we feel that site neutral payments by CMS are coming (likely within 3 years for select conditions) and organizations should be preparing for this new reality.

In November of 2015 CMS published the final rules for the Comprehensive Care for Joint Replacement (CCJR) model which began on April 1, 2016 for 67 MSAs across the US. In this rule, the acute care hospital will be the distributor of a bundled payment savings for all hip and knee replacement surgeries including the provision of care up to 90 days post-discharge. As part of CCJR, hospitals and their provider partners will have additional flexibility to provide care for the patients in the most cost effective means possible, as long as certain performance metrics are met. The usual three-day hospitalization requirement for Medicare to cover a skilled nursing discharge is reduced to two days in year two of the program if the hospital discharges to a facility with a CMS rating of three stars or more. While CCJR is the first mandatory bundled payment from CMS, many other bundled payment pilots are showing promise and will likely follow suit.

Reasons for Making Post-Acute Integration a Priority
Given the regulatory changes and our understanding of the significant variability of cost and quality in PAC providers, it is not prudent for hospitals and health systems to continue to sit on the sidelines. Change is coming very soon. We believe that PAC integration should be a priority for hospitals and health systems for a number of reasons.

PAC Providers Want to Collaborate - Most PAC providers are eager to work with their acute care counterparts. There is a collective realization that much of their reimbursement will be controlled by "upstream" providers in the future, which has them anxious to form and test partnerships. If they haven't already, hospitals should be conducting their due diligence now to understand the best PAC providers in their markets and reaching out to integrate before they align with a competitor. Even for hospitals that are not included in one of the 67 markets where bundled payments are mandated, PAC integration can greatly enhance the care provided to patients and reduce readmission rates.

PAC Integration May Provide Positive Results More Quickly Than Population Health Initiatives – Transitioning towards clinical integration and population health management are important goals for many hospitals and health systems; however, making the shift to a population health organization is highly complex and requires significant investment. Realistically, the transition to a population health organization, developing a network that is attractive to payors and large employers, and changing payor contracts to support the new care models is a much longer time horizon for most hospitals and health systems than bundled payments. Additionally, some hospitals may never be large enough to make the transition, where likely every acute care hospital (except potentially critical access hospitals) will be paid in bundles.

PAC Integration Is Part of the Development of Integrated Practice Units – Breaking down the silos that have historically existed between ambulatory care, acute care, and PAC providers and coordinating care across the continuum creates a significant opportunity to improve the efficiency and quality of care. Many organizations are now extending the service line concept into integrated practice units that are accountable and have some level of control across the entire care continuum.

PAC Integration Offers an Opportunity to Enhance Revenue - As reimbursement in the historical fee-for-service models continues to stagnate, bundled payments present a significant opportunity for providers to expand revenues and capture savings. Even when providing a discount on the historical average cost of the bundle, the full savings (if achieved) typically come to the hospital for distribution. This provides opportunity to increase revenues and margins for these for bundled services.

Conclusion
Every acute care hospital should be committed to integrating with PAC providers. It is the right thing to do from both a patient care and financial perspective and given current market conditions, organizations should make it a priority. There are numerous options for integrating PAC. There is no "one size fits all" model. Hospitals and health systems will need to consider market dynamics, and their own, vision, goals, financial situation, and culture to determine the right model for them.

Ross Armstrong is a partner in global management consulting firm Kurt Salmon's Health Care Group. He can be reached at Ross.Armstrong@KurtSalmon.com

Edward Jhu is a Principal and Consulting Actuary at Milliman. He can be reached at Edward.Jhu@Milliman.com

1MedPAC Testimony. Post-Acute Care Reforms. June 14, 2013
2Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group. National Health Expenditure Data: Health Expenditures by State of Residence, December 2011.
3Variations in Healthcare Spending. Target Decision Making, Not Geography. Institute of Medicine, July 2013.
4How Much Is Postacute Care Use Affected by Its Availability? Health Services Research 2005 Apr; 40(2): 413–434.
5Medpac Data Book: Health care spending and the Medicare program, June 2015
6Allowed cost is the cost for any type of post-acute care (i.e., SNF, HHA, IRF) in the same calendar year within 90 days of the surgery, before any readmission.
7DRG's 469 and 470 were used to identify joint replacement surgeries. The review was limited to surgeries performed in the first 10 months of the calendar year in order to appropriately identify readmissions. Readmissions are inpatient admissions that occur for any cause within 30 days of discharge. SNFs were only included in this exhibit if they had at least ten Medicare admissions. 39 SNFs met the criteria in Houston.
8DRG's 469 and 470 were used to identify joint replacement surgeries. The review was limited to surgeries performed in the first 10 months of the calendar year in order to appropriately identify readmissions. Readmissions are inpatient admissions that occur for any cause within 30 days of discharge. SNFs were only included in this exhibit if they had at least ten Medicare admissions. 54 SNFs met the criteria in Boston.
9DRG's 469 and 470 were used to identify joint replacement surgeries. The review was limited to surgeries performed in the first 10 months of the calendar year in order to appropriately identify readmissions. Readmissions are inpatient admissions that occur for any cause within 30 days of discharge.

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