Skilled Nursing Facilities May Profit from Reducing Medicare Beneficiary Hospitalizations

The Centers for Medicare and Medicaid Services (CMS) estimate that approximately 45% of hospitalizations for Medicare and Medicaid beneficiaries are avoidable and may result in up to 8 billion dollars in Medicare and Medicaid costs.  As part of its current efforts to reduce Medicare spending and improve the quality of care for beneficiaries, CMS designed an initiative for skilled nursing facilities (SNF) to evaluate different interventions aimed at improving the health of SNF residents to reduce costly hospitalizations. In addition, CMS has proposed payment and policy rule changes that contain a number of quality measures, including hospitalizations among beneficiaries. While the initiative and proposed rule have the potential to save Medicare a significant amount of money overall, the incentive payments available under these rules could lead to increased revenues for SNFs if nursing facilities take steps now to improve care transitions.

Initiative Phase One

Since 2012, CMS has partnered with seven Enhanced Care and Coordination Providers (ECCPs) to implement clinical and education-based interventions at 144 SNFs to reduce the frequency avoidable hospital admissions. Each ECCP has partner nursing facilities with which it implements evidence-based interventions.  At the beginning of phase one, each facility proposed its own interventions.  While no set clinical model was employed, all interventions were required to:

  • Facilitate coordination and collaboration of all providers involved in a beneficiary’s care, including primary care providers and nursing facility staff;
  • Manage prescription drugs for each resident to prevent adverse events;
  • Be replicated and sustained in other communities and institutions;
  • Supplement the care currently provided, not replace it; and
  • Allow participation of residents without the need to change providers or enroll in a health plan.

In January 2015, CMS released a report detailing the results of the first phase. While the data showed some inconsistencies between facilities, most ECCP interventions in phase one reduced the number of avoidable hospitalizations and Medicare spending across all facilities. Both “hands on” interventions (direct care and clinical assessment by ECCP personnel) and educational intervention (or staff training) were employed.  “Hands on” interventions showed greater reductions in spending and hospital admissions than educational interventions. Overall, the report concluded that more data was necessary to fully evaluate the effectiveness of the initiative, partly due to the time necessary to implement the initiative in each facility. Thus, CMS planned a second phase of the initiative and is permitting successful phase one ECCPs to continue implementing the interventions in phase two with the addition of a payment model.

Initiative Phase Two

The payment model in phase two provides funding for more high-intensity interventions to be provided at the nursing home level before a resident’s condition requires hospitalization.  CMS will focus on six medical conditions during this phase that account for approximately 80% of potentially avoidable hospitalizations:  pneumonia, dehydration, congestive heart failure, urinary tract infection, skin ulcers/cellulitis, and chronic obstructive pulmonary disease/asthma.

The new payment model also includes reimbursement for practitioners, including physicians, physician assistants, and nurse practitioners, at levels similar to those that the practitioner would receive for treating the nursing home resident in a hospital. Practitioners may also receive incentive payment for engaging in multidisciplinary care with residents’ other providers. Phase 2 of the initiative will start October 2016 to October 2020.

Proposed Rules on Value-Based Payments to SNFs

CMS also issued a proposed rule for Medicare payment rates and quality programs for SNFs to apply to all SNFs, not just those involved in the initiative.  In line with other recent changes to Medicare, the proposed rule shifts the focus from quantity to quality for Medicare reimbursement. Medicare will allocate SNF payment based on the Skilled Nursing Facility Value-Based Purchasing (SNF VBP) Program, established under section 1888(h) of the Social Security Act.

One performance measure is the SNF 30-Day Potentially Preventable Readmission Measure (SNFPPR). The SNFPPR will assess the rate of unplanned, potentially preventable hospital readmissions for SNF patients within 30 days of discharge from a prior admission to a hospital paid by Medicare in a hospital receiving reimbursement from the Inpatient Prospective Payment System, a critical access hospital, or a psychiatric hospital. The measure accounts for Medicare beneficiaries who are readmitted to the hospital from the SNF (“within stay”) as well as Medicare beneficiaries who have been recently discharged from the SNF (“post-SNF”).

The proposed rule presumes that SNFs can avoid potentially preventable readmissions (“PPR”) with sufficient medical monitoring and appropriate treatment.  For within-stay beneficiaries, CMS identifies the following as indicators of quality care issues that may result in readmission:  (1) inadequate management of chronic conditions; (2) inadequate management of infections; (3) inadequate management of other unplanned events; and (4) inadequate injury prevention.  A PPR for a post-SNF discharge beneficiary is a readmission for which the probability of occurrence could be minimized with adequately planned, explained, and implemented post-discharge instructions and appropriate follow-up care. Post-discharge quality criteria issues include the first three items listed above.

The SNFPPR will reportedly assess risk of readmission at a facility level accounting for resident demographics, principal diagnosis in the prior hospital stay, comorbidities, and other patient factors relevant to readmission. CMS and its contractors will calculate a standardized risk ratio for readmission (“SSR”) by comparing the number of PPRs in the SNF to an estimated number of PPRs, risk-adjusted for the SNF. If the resulting SSR is above 1, this indicates a higher than expected readmission rate. Readmissions that are planned or are not considered preventable will not be counted in the measure rate.

The rule also includes assessment-based measures for drug regimens and adverse outcomes in SNFs and claims-based measures for discharge to the community, Medicare spending per beneficiary, and potentially preventable 30 day post-discharge readmissions to the SNF. CMS is accepting comments on this proposed rule until June 20, 2016.

CMS estimates that aggregate payments to SNFs under the proposed rule could increase in FY 2017 by $800 million. Additionally, incentive payments for higher-intensity interventions may also be available to SNFs if phase two of the initiative shows a decrease in hospital admissions. This means more money in the pockets of the SNF, despite overall Medicare cost savings.   On the flip side, SSRs above 4 will reduce SNF payments. Nursing facilities need to take steps now to prepare for payment changes tied to the readmission rate, including implementation of quality improvement programs to minimize readmissions and strategic contractual alignments with hospitals and physicians to improve care transitions.

Should you or your organization have any questions regarding the potential effect of the initiative or proposed rule  on your long-term care facility, please contact Goodman Allen Donnelly.


This Client Advisory is for general educational purposes only. It is not intended to provide legal advice specific to any situation you may have. Individuals desiring legal advice should consult legal counsel for up to date and fact specific advice.