sooner than you think

Even though Medicare's skilled nursing facility (SNF) réadmissions penalty doesn't take effect until FY19, hospitals will see its impact much sooner.

To reduce preventable admissions from SNFs to hospitals, language implementing value-based purchasing for SNFs was included in last year's legislative patch of Medicare physician payments as a "pay for." Although Congress called the program value-based purchasing, it is currently limited to a readmissions penalty. Hospitals and health systems should understand how the penalty will be applied and the timing of related provisions. SNF value-based purchasing will pose challenges to facilities that ignore the requirements while presenting opportunities to those that position themselves properly.

Acute Admissions (rom SNFs

A 20i3 report by the Office of Inspector General (OIG) found that in 2011, more than 825,000 Medicare beneficiaries were admitted from a SNF to a hospital, with more than 30 percent of those patients admitted multiple times for a total of approximately 1.3 million admissions (roughly 5 percent of Medicare hospitalizations) at a cost of over $14 billion.3 The OIG report also found that 65 percent of these admissions were concentrated into 15 diagnosis categories, including somesuch as sepsis (20 percent), pneumonia (5.9 percent), heart failure (4.5 percent), and urinary tract infection (3 percent)-that could be managed in a SNF, assuming it had the necessary capabilities.

Furthermore, according to the OIG report, acute admission rates from SNFs vary significantly based on quality rating and geography. While the national average readmission rate is 25 percent, SNFs receiving more than three stars on the Centers for Medicare & Medicaid Services' (CMS's) Nursing Home Compare website have re-hospitalization rates that are approximately four percentage points lower than organizations receiving three or fewer stars. Geographically, there is a threefold difference in readmission rates between the best- and worst-performing states as shown in the exhibit on page 33.

Given such variation, and the fact that many conditions are manageable in the post-acute setting and do not require rehospitalization, it's not surprising that Congress would see an opportunity to generate savings for the Medicare program while improving outcomes for beneficiaries.

A Closer Look at the Program

Although the Affordable Care Act directed CMS to evaluate value-based purchasing for SNFs, there was no explicit legislative mandate prior to the passage of the Protecting Access to Medicare Act of 2014. The Congressional Budget Office estimates the value-based purchasing program will save CMS $2 billion in 2019-24.b The authorizing language was included as a partial offset to pay for the cost of the most recent patch of the Medicare sustainable growth rate. Therefore, the program is not budget neutral, which is an important distinction from the budget-neutral hospital value-based program.

All Medicare SNF payments will be subject to a 2 percent withhold starting Oct. 1, 2018 (for FY19). As with the hospital readmissions penalty, SNFs will be evaluated based on the ratio of their actual readmissions to their expected readmissions, relative to the national average. Facilities that perform in the bottom 40 percent will see their per diems reduced, while those finishing higher will receive their full per diem and may be eligible for a bonus payment. The legislation sets aside between 50 and 70 percent of the withheld amount to repay the withhold, and these funds could also be used to increase payments to SNFs with low readmission rates relative to their peers.

The legislation mandates the development of two hospital readmission measures for SNFs: an all-cause, all-condition hospital readmission measure and a measure to reflect the all-condition, risk-adjusted rate of potentially preventable readmissions. CMS will provide SNFs with quarterly confidential reports on both measures beginning Oct. 1, 2016 (for FY17). Public reporting of the measures is required by Oct. 1, 2017 (for FY18) on the Nursing Home Compare website.

The Timing of Bohavioral Change

It might be tempting to temporarily overlook the SN F value - based purchasing program, given that the penalties are almost four years away. However, that perspective ignores two factors. First, public reporting (which begins in less than three years) has been shown to motivate behavioral change in healthcare providers, and in other programs has led to incremental improvements in quality. Second, the data displayed on Nursing Home Compare and used to determine SNF value-based purchasing scores will come from prior periods.

CMS hasn't specified rules for the program yet, but a useful analogy might be the hospital readmissions reduction program. The first year of the program (FY13) used claims from dates of service spanning July 1, 2008, through June 30, 2011, to calculate the penalty. As a result, facilitylevel efforts to reduce réadmissions began well before FY13. A noticeable decrease in all-cause readmissions occurred approximately 21 months before the first penalties were applied.'

Assuming CMS uses a similar time frame to ensure the volume of claims is sufficient to support the statistical stability of the readmissions measure, SNFs very likely are already sitting in the performance window for both reporting and penalties. Given that it takes an estimated 12 to 14 months for interventions to reduce re-hospitalizations from SNFs to take effect, improvement efforts should be well underway lest organizations be left behind in the race to reduce readmissions.d

Implications for Hospitals and Health Systems

Any change in financial incentives in a payment system along the care continuum poses both challenges and opportunities for hospitals and health systems. Although some of the challenges are theoretical (for now), others are very tangible. Some stakeholders have expressed concern that even though the readmission penalty is riskadjusted, SNF value-based purchasing will make some SNFs less willing to accept referrals of patients who are more likely to be readmitted. Both CMS and hospitals will need to closely monitor that potential issue.

The SNF value-based purchasing program should have a tangible impact on hospital volumes. Several programs-including the Medicare Shared Savings Program-already are putting downward pressure on Medicare admissions from SNFs, with the impact varying based on the extent to which the programs are present in a hospital's market. SNF value-based purchasing should start to reduce Medicare admissions from SNFs over the next 12 months in all markets.

At a minimum, if all SNFs could replicate the average readmissions rate of those rated with four or more stars, Medicare acute admissions would decrease by 8.8 percent, based on HFMA's analysis. Admission rates from SNFs most likely will fall more dramatically given the pressure on all SNFs to improve. Furthermore, it is expected that the steepest declines will occur in states with the highest admission rates from SNFs. Hospitals and health systems should account for this additional downward pressure on Medicare volumes as part of their strategic and financial planning, including by developing backfill strategies to replace the lost volume that was attributed to unnecessary utilization.

Despite the impact on volume, the emphasis on SNF admissions creates multiple opportunities for hospitals and health systems. Aligning incentives between the acute and skilled nursing settings around readmissions will improve care transitions and general collaboration across settings, as HFMA has encouraged CMS to do in multiple comment letters. Doing so also should reduce hospitals' risk of incurring readmission penalties.

SNF value-based purchasing also creates an opening for organizations to experiment with long-term care episodes and population health management payment systems. Given that the penalty is not time-bound, as the hospital readmissions penalty is, SNFs will be concerned with admissions that occur beyond 30 days past discharge. They will want to collaborate with the service lines in local facilities that refer high volumes of patients to develop care plans for ensuring that these individuals can be managed in the SNF. Where these collaborations between the acute and post-acute settings have occurred, rates of readmissions from SNFs have dropped as much as 50 percent.' These circumstances should open opportunities for hospitals to partner with SNF providers in episodic or other payment innovations that extend past the acute discharge.

Regardless of your organization's focus, now is the time to reach out to SNFs in your community to assess opportunities to coordinate care transitions and reduce readmissions. Such coordination will help both organizations reduce their exposure to penalties related to readmissions and, more important, will improve outcomes for patients.

a. OIG, "Medicare Nursing Home Resident Hospitalization Rates Merit Additional Monitoring" November 2013; "MedPAC, "Acute Inpatient Services: Short-Term Hospitals, Inpatient Psychiatric Facilities," Section 6, Data Book: Healthcare Spending and the Medicare Program, June 2014; HFMA analysis.

b. Congressional Budget Office, "Cost Estimate for the Protecting Access to Medicare Act of 2014," March 26, 2014.

c. U.S. Department of Health and Human Services, New HHS Data Shows Major Strides Made in Patient Safety, Leading to Improved Care and Savings, Figure 1: Medicare FFS All-Cause, 30-Day Readmission Rate, May 7, 2014.

d. Gifford, D., 'Linking Payment with Quality: Reducing Rehospitalizations,' HFMA Webinar, Aug. 14, 2014.

e. Hegwer, L.R, 'Bridging Acute and Post-Acute Care," Leadership, Fall/Winter 2013.

Chad Mulvany is director, healthcare finance policy, strategy and development, HFMA's Washington, D.C., office, and a member of HFMA's Virginia-Washington, D.C., Chapter ([email protected]).