SNF Industry and Evolving Revenue Models August 2016
Medicare Challenge and Opportunity CMS must encourage decreased SNF lengths of stay through non-FFS payment models in order to meet the needs of a surging patient population, as Medicare funds are limited. Nevertheless, overall SNF Medicare patient days are projected to grow with increasing Medicare enrollment. Sophisticated, Value-Driven SNF Operators Will Thrive Shifting payment systems will incentivize patient outcomes and cost efficiency Demographic trends and increasingly selective networks will provide volume SNF Industry and Evolving Revenue Models, August, 2016 2
Medicare Payment System Continues to Evolve Shift Away from Traditional Fee-for-Service (FFS) from 2010 to 2015, Continued but Slower Growth in Alternative Payment Going Forward 2010 2015E 2020E Sources: CMS Office of the Actuary for Spending and Enrollment. Avalere analysis for alternative payment model projections. SNF Industry and Evolving Revenue Models, August, 2016 3
Medicare Payment System Continues to Evolve Increasingly FFS Payments will be Bundled or Subject to Value-Based Adjustments Sources: CMS Office of the Actuary for Spending and Enrollment. Avalere analysis for alternative payment model projections. SNF Industry and Evolving Revenue Models, August, 2016 4
Attractive Fundamentals: Increasing Volumes SNF days projected to grow due to increasing enrollment, even while Medicare patient lengths of stay decline under alternative payment models (bundling, managed care, ACOs) Yearly Medicare SNF Volume (Days) 110 105.79 101.53 100 92.40 (Millions of Days or Beneficiaries) 96.59 91.22 90 91.22 81.97 81.97 80 81.97 Total Medicare Enrollment (Beneficiaries) Conservative 70 Moderate 64.47 Aggressive 60 Source: SNF Volume from November 2015 Avalere Health 55.83 projection model (“Assessment of SNF Reimbursement and 50 Utilization Landscape” Report); Medicare enrollment from 2015 Medicare Trustees’ Report 47.72 40 2010 2015 2020 Note: Conservative, Moderate, and Aggressive refer to model assumptions about rate of growth in alternative payment models (not traditional fee-for-service) SNF Industry and Evolving Revenue Models, August, 2016 5
Goals of the Centers for Medicare and Medicaid Services (CMS) CMS Quality Strategy developed to align with the three broad aims of DHHS National Quality Strategy: Better care Smarter spending Healthier people, healthier communities CMS Goal #1: 50% of Medicare payments tied to quality or value through alternative payment models (ACO’s and bundling programs) by end of 2018 CMS Goal #2: 90% of Medicare payments tied to quality or value through alternative payment models or value-based purchasing by end of 2018 SNF Industry and Evolving Revenue Models, August, 2016 6
Types of Alternative Payment Models and Bundling Programs to Date Medicare Advantage (MA) Commenced in 2006 as Medicare Part C benefit Plans include HMO’s and PPO’s Replaces traditional Medicare FFS for Part A and B services Medicare beneficiaries can enroll voluntarily Plans bill Medicare for A and B services based on beneficiary risk assessment; bill beneficiaries for out-of-pocket costs or additional coverage options Accountable Care Organizations (ACO’s) Authorized by 2010 Affordable Care Act (Obamacare) Networks of doctors, hospitals, and other providers responsible for coordinating care for large groups of Medicare beneficiaries (min. 5,000) Replace traditional Medicare FFS for Part A and B services Unlike MA plans, must meet quality standards to realize savings, and beneficiaries can choose out-of-network providers SNF Industry and Evolving Revenue Models, August, 2016 7
Types of Alternative Payment Models and Bundling Programs to Date Value-Based Purchasing (VBP) Authorized by Protecting Access to Medicare Act of 2014 (PAMA) Commencing October 2018 Traditional Medicare FFS discounted by 2% SNF’s can earn back some or all of discount based on ranking of rehospitalization rate for prior calendar year Only 50% to 70% of total discount will be returned to SNF’s, resulting in overall savings to Medicare SNF Industry and Evolving Revenue Models, August, 2016 8
Bundling Programs Comprehensive Care for Joint Replacement (CJR) CJR 1: 5-year pilot bundling program commenced 4/1/16 and runs through 2020, covering hip or knee joint replacements CJR 2: 5-year bundling program to commence 7/1/17 and run through 2021, covering surgical hip or femur fracture treatment Provides episodic payments (capitation) for hospitalization and post-acute care (PAC) for 90 days’ post-discharge Mandatory participation by 800 hospitals in 67 MSA’s (covering 25% of nation’s population) PAC for hip/knee joint replacements and for surgical hip/femur fracture treatment represents 7% and 6%, resp., of SNF Medicare revenue nationally SNF Industry and Evolving Revenue Models, August, 2016 9
Bundling Programs Cardiac Bundle 5-year bundling program to commence 7/1/17 and run through 2021, covering heart attacks and bypass surgeries Provides episodic payments (capitation) for hospitalization and PAC for 90 days’ post-discharge Mandatory participation by hospitals in 98 MSA’s to be selected randomly PAC for heart attacks and bypass surgeries represents 2% of SNF Medicare revenue nationally SNF Industry and Evolving Revenue Models, August, 2016 10
Bundling Programs (cont’d) Bundled Payments for Care Improvement (BPCI) 3-year pilot program now in year 3; just extended by CMS for 2 years to allow for better evaluation of effectiveness in improving care and reducing costs Voluntary participation by over 1,500 providers to date (hospitals, physicians, SNF’s, and other PAC providers), including 5% of SNF’s nationally Provides episodic payments under varying bundling models for up to 48 diagnostic conditions Other Payment Concepts: In March 2016 MedPAC recommended to Congress a unified PAC PPS system to replace FFS system AHCA advocating legislation for similar SNF-bundled PAC payment system, currently under review by the CBO SNF Industry and Evolving Revenue Models, August, 2016 11
Keys to SNF Success 1. Patient Satisfaction 2. Patient Outcomes 3. Cost Efficiency 4. Coordination of Care with Other Providers SNF Industry and Evolving Revenue Models, August, 2016 12
Keys to SNF Success: Patient Satisfaction Best single measure of quality of care and services Key element of CMS star ratings of hospitals Harvard study (JAMA, April 2016): strong positive correlation between hospital patient experience and hospital patient outcomes Opportunity to cast SNF’s in positive light vs. negative perception from compliance surveys For hospital discharges to SNF’s, patient choice trumps network preference Omega to commence CoreQ satisfaction surveys of facilities SNF Industry and Evolving Revenue Models, August, 2016 13
Keys to SNF Success: Patient Satisfaction (cont’d) 2015 National SNF Patient Satisfaction Survey Results (Short-Stay upon Discharge) Source: National Research Corporation, 2015 surveys in 5,478 SNFs SNF Industry and Evolving Revenue Models, August, 2016 14
Keys to SNF Success: Patient Outcomes Notable New CMS Quality Measures Effective April 2016: Rehospitalization Rate (all-cause, 30-day, risk-adjusted) National average currently 21.1%; estimated target at three points below average for full return of Value-Based Purchasing discount that commences October 2018 Joint replacement episode cost doubles with rehospitalization Discharge rate to the community – reflects improved condition from SNF treatment Functional ADL improvement during SNF stay SNF Industry and Evolving Revenue Models, August, 2016 15
Keys to SNF Success: Patient Outcomes (cont’d) Majority of CMS Quality Measures can be Misleading: Limited to issues of compliance and patient incidents, rather than outcomes Do not account for patient conditions upon admission Quality Measure ratings to date can provide misleading results based on characteristics of patients SNF’s choose to admit New Quality Measures (rehospitalization, discharge to community, functional improvement) represent better indicators of SNF outcomes SNF Industry and Evolving Revenue Models, August, 2016 16
Keys to SNF Success: Patient Outcomes (cont’d) Star Ratings Can Be Misleading: Do not denote quality of care, just degree of regulatory compliance or rate of adverse incidents Nevertheless, ratings used in establishing some networks and for 3-day stay waiver under CJR and cardiac bundles Examples: “Perfect” survey yields a 5-star Health Inspection rating but does not address quality of care in meeting patient needs Overstaffed facility can achieve a 5-star Staffing rating but could be incurring excessive operating costs and operating inefficiently A facility choosing to treat high-acuity patients with complex nursing issues could yield a 1-star Quality Measure rating but could be providing good quality of care SNF Industry and Evolving Revenue Models, August, 2016 17
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