We attended the 2019 Zimmet Healthcare Seminar: The Theory of Reimbursementivity in Atlantic City a couple of weeks ago, and let’s just say the mood was…cautiously optimistic. Most of you have seen the numbers. CMS proposed a 2.8% increase to the Medicare market basket rate in the final rule, resulting in $851 million more in payments for nursing facilities in the coming fiscal year, which begins in just five weeks on October 1. Well-operating SNFs should see a healthy revenue bump under PDPM, or Patient Driven Payment Model. But there’s a key word there: “should.”
A big takeaway from the Zimmet conference is that, the industry won’t really know the real impact of PDPM until it is actually implemented. Revenue projections may in fact be too rosy, as the increased revenues should only come from SNFs treating more medically-complex patients (and coding them correctly), which come with added costs and risk of rehospitalization. And if acuity and rates of depression in SNFs jump too quickly year over year, CMS may readjust rates downwards in future years. Also, therapy will shift from being a “revenue center” to a “cost center” for SNFs, meaning there will be added pressure to provide quality care with results rather than sheer quantity of therapy minutes.
But, another overall impression of the attendees at the conference was that PDPM will be an overall good change for the industry. SNFs should run towards that risk, if they expect to not only be the post-acute care provider of choice, but to profit from it too. At last, comorbidities that make providing care more difficult, like treating post-acute patients with depression or cognitive impairment, can be reimbursed. One stat from one of the sessions stated that only about 5% of patients are currently noted as being depressed, when the number is likelier to be as high as 42%. Since depression can lead to a higher rate of rehospitalization, and cognitive impairment can increase the length of stay (and even higher staff turnover, as we learned at the session), SNFs were losing out on tens of per-day patient dollars, which can add up quickly. It seems that with PDPM, CMS finally addressed some of the difficulties SNFs face on a day-to-day basis caring for these increasingly more complex patients. And they put the money where their mouth was.
As for the reimbursement change affecting M&A in the skilled nursing market, uncertainty prevails. Some cite PDPM as a clear win for SNFs and want to get in on the action before values rise. But that would only be for facilities with a higher Medicare census. Facilities with mostly Medicaid patients operate in a totally different world where rates have been slashed to the bone and their few Medicare patients will be gobbled up by newer SNFs or hospital-based SNF units that will benefit from the reimbursement hike. Labor costs will also affect these older, Medicaid SNFs disproportionately, as they will be less flexible to pay competitive wages for a tough, unglamorous job. In that market, we will likely see plenty of sales of distressed facilities, a common trend of the last couple of years. Our guess is that until the benefits and drawbacks of PDPM are fully fleshed out, M&A will slow to reflect that caution.
