According to the National Investment Center for Seniors Housing and Care, almost one in five nursing home beds are unoccupied.  Occupancy – once as high as 87 percent in 2011 – is down to 81.7 percent.  Several factors related to skilled nursing facility (SNF) reimbursements have contributed to this decline.  Despite an aging population, these factors may continue to apply pressure on an industry that has recently seen between 200-300 closings per year.  By understanding the underlying forces of the decline, SNFs can adopt new strategies to succeed.

Reimbursements for SNF’s have changed under the nation’s fee-for-service structure, but healthcare’s transition to value-based care is a larger threat.  Under value-based programs – such as shared-savings or bundled payment models – providers can increase their own revenue by decreasing the overall cost of care for patients “attributed” to them.  Many such providers have set their sights on SNF lengths of stays to achieve cost reduction.

There are several reasons for targeting SNFs.  For many years, patients were invariably discharged to SNFs after major surgery, and often remained there until insurance coverage ran out.  The consensus was that patients were better off in SNFs than at home. The SNF bubble grew.

Under a fee-for-service system, there is little economic incentive to change referral patterns, and care remains siloed.  Value-based care models provide an economic incentive to coordinate care beyond one’s own silo though, and data from several bundled payment programs have revealed that longer SNF lengths of stay do not necessarily correlate with better outcomes.

When patients are discharged from surgery, providers participating in shared-savings and/or bundled payment models can increase their own revenue by managing the amount of time, if any, patients spend at SNFs.  Thus, transitions to “home health” care have accelerated.  Since home health care is less expensive than skilled nursing in the short term, SNFs must demonstrate value in other ways.

For example, patients who do not receive appropriate post-acute care are prone to hospitalizations. These costs typically far outweigh any savings that would come from reducing SNF lengths of stay.  Thus, SNFs should focus on reducing hospitalizations and track the results.

SNFs able to improve quality through data analytics, standardization of care pathways and care coordination can thrive under value-based care.  Metrics to capture can include: Average lengths of stay, incidents of pressure sores, infection rates and complication rates in general.  SNFs are also uniquely positioned to obtain information on patients that might not otherwise be obtainable.  Healthcare professionals at SNFs can accumulate and validate a host of “social determinants.”  Data to help predict complications can be leveraged to improve care quality, reduce readmissions and lower costs.

Adept SNFs compile this data and use it to develop new relationships.  They recognize the opportunity to become more specialized and forge partnerships with other providers.  By accepting financial risk for their patients, SNFs can further align themselves with value-based care partners.

SNF’s can work to demonstrate that time at their facilities correlate with less home health expenses overall, fewer lawsuits or even a quicker return to work – a metric which could prove increasingly important as employers continue to “self-insure” their health and workers compensation insurance.

Given the number of SNFs closing each year, the ones that innovate stand to gain the most, but only if they are prepared to make investments in value-based programs and essential technology.

Technology assists in capturing valuable data.  Predictive modeling and artificial intelligence can use this data to help identify patients most at-risk for complications.  A platform that integrates with all providers along a continuum of care can help lower costs and improve quality.

Industries and opportunities do not grow perpetually without considerable challenges.  As the skilled nursing facility market experiences growing pains, it can choose to treat only the symptoms, or find innovative cures.

Brian S. Kern, JD, CEO of Deep Risk Management – a boutique financial risk firm that specializes in helping physicians and healthcare entities engaged in at-risk value-based care models.