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Know when to hold ’em, know when to fold ‘em

Know when to hold ’em, know when to fold ‘em December 18, 2015

Marketing, research and business development consultant in healthcare, human services and senior living.

Who wins and losses
Winners or losers

The transition from fee for service to value based payment was not predicted to be “smooth sailing” and recent reports about providers opting out the Bundled Payment for Care Improvement (BPCI) initiatives demonstrates that some providers are carefully assessing risk and deciding to “fold ‘em”.

For hospitals, only the large, academic medical centers seem to have the deep pockets to stay in the game. For post-acute care providers, the risks for downside losses are simply too great to be tolerated. Some SNFs saw this coming and refused a seat at the table in selected regional BPCI poker games.

Post-acute care providers that are large enough to spread the risk over multiple centers may choose to “hold ‘em” and use the BPCI data that is and will be available as a way to estimate future risks, and decide how to play future hands.

In the current environment, SNFs, IRFs and other post-acute care providers compete for referrals. With the advent of “value based payment” referral networks are narrowing, and there are fewer seats at the table. This has raised concerns about being cut out of the referral game entirely and pushed  SNFs and IRFs and others to ante up to play the game.

Value based payment is not a game that many post-acute care providers can win.  In a particular marketplace area, there is a relatively fixed number of discharges requiring in-patent rehabilitation.  If instead of these discharges being distributed among 5 SNFs and IRFs, if the same number is distributed to 3, then briefly those 3 enjoy the increased, relatively highly paid patient days. The 2 that were shut out? They can no longer cross subsidize the Medicaid patient days with the Medicare or managed care days, revenue declines and staff cuts ensue. There will probably also be more closures.

And for the alleged “winners” – the 3 that are in the networks? Most will certainly not see the per patient per day revenue that they enjoyed for the Medicare program, assuming they were managing their RUGS well.  They will have higher indirect costs to manage the program and higher direct costs to care for the patients themselves, reducing their per patient margin. The gamble is that the increased number of “value based” patient days will come at a lower margin per patient day, and that the “winners” will be no better off.

In the short run, for those post-acute care providers which choose to ante up and play the game, there may be an upside benefit. In the long run, as the model takes root and CMS reaches its goals for 2018, money will come out of the system, leaving progressively less for participating providers. The only path to sustainable post-acute care is progressively greater levels of efficiency, i.e., achieving greater outputs with the same or fewer inputs, and this will be a significant challenge.

Some call this a race to the bottom; in the high stakes poker game, we all know the house never loses.

Marketing, research and business development consultant in healthcare, human services and senior living.

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