SNF Value-Based Purchasing Under SGR Extension

Earlier this week President Obama signed into law H.R. 4302, the Protecting Access to Medicare Act of 2014. The sole impetus of this legislation was to once again avert – by one year – the nearly 24% cut to the Medicare physician fee schedule that was initiated as part of the Balanced Budget Act of 1997 under the Medicare Sustainable Growth Rate (SGR) methodology. This marks the 17th time in 11 years now that the automatic cut has been averted by legislative action. Congress knows how to kick a can.

Just a few weeks back there was a fair amount of optimism the SGR might be fully repealed and replaced with a “permanent” payment methodology. There was bipartisan support in both the House and Senate, but as you might expect, wide differences in how to pay for the repeal. While Republicans sought repeal of the individual mandate, Democrats wanted to tap into unused military spending. And there you have it then.

In about 11 months from now Congress will be back to the same spot of having to deal with a pending fee cut, but it will be a different Congress.  Just how different of course should make for a fascinating late summer/fall entertainment for political wonks. In the interim, however, there are a number of non-physician related items included in this Act that are worth noting, including a delay in the implementation of ICD-10; acceleration of LTCH moratorium; changes to Medicaid disproportionate share hospital (DSH) payment reductions; limitation on the two-midnight rule enforcement; as well as other provisions.

SNF Value-Based Purchasing
In addition, the Act calls for the establishment of two hospital readmission-related measures for skilled nursing facilities (i.e., value-based purchasing for SNFs). The first measure is an, “all-cause all-condition” hospital readmission measure; and the second is to encompass, “all-condition risk-adjusted potentially preventable hospital readmission rate.”

The implementation of this program is a few years off: actual reductions in Medicare reimbursement based upon comparative readmission performance won’t take effect until FY 2019 (i.e., SNFs with fiscal years beginning on or after October 1, 2018). But when it does take effect, those organizations with relatively lower hospital readmission performance will be penalized two-percent of their otherwise Medicare reimbursement. In turn, up to 70% of the savings achieved from this penalty will be redistributed to those organizations achieving relatively better readmission performance.

No doubt the process for developing these measures will be contentious despite assertive measures to avoid bias and/or misrepresentation of care indicators included in the Act. And with penalties not starting until four-plus years from now who knows just how (or even whether) the program will be implemented.

Clearly the sentiment in Washington – at least today – is to shift reimbursement from post-acute/long-term care to acute care. And the preferred means of accomplishing this will be to focus on perceived opportunities for cost savings while improving, or at least without impacting, quality care. The value paradigm: quality divided by cost.

In advance of the value-based purchasing program will be the QAPI initiative, regulations for which are anticipated later this summer. SNF organizations will have to be able to develop quality assessment and performance improvement programs that support being able to predictively monitor and model hospital readmissions given a variety of qualitative and quantitative indicators requiring real-time operational and clinical adjustments.

For many smaller SNF organizations this is going to be a daunting task because of the investment requirements. They will be caught in the unenviable spot of having to make substantial capital investments to maintain cash flow levels that already cannot support capital accumulation. As such, within the next few years they will be faced with closing, merging or selling.

So although the revenue impact of value-based purchasing is still several years away, all SNFs would do well to begin understanding and assessing their short and long-term financial viability in lieu of these forthcoming requirements – while there are still choices available.


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