Editor’s Note: An increasing number of hospitals and health systems are seeking to integrate with post-acute care (PAC) by creating networks of preferred providers that collaborate to optimize patient care across settings. A Premiersurvey of 82 hospitals and health systems found that 95% indicate that developing PAC networks to support population health is a major focus over the next three years.
Manatt Health recently presented a new webinar, summarized below, revealing the drivers behind the rise of PAC networks…the complexities of forming them…and the keys to ensuring success. To view the full webinar free, on demand, click here. To download a free PDF of the webinar presentation, click here.
Post-Acute Care: Trends Motivating Transformation
Six key trends are driving transformation in post-acute care:
- The growing recognition that PAC services are a core element of the healthcare continuum
- The significant increases in Medicare PAC spending and service utilization
- The considerable variations in Medicare PAC spending, quality and patient placement
- The large number of payment models being tested, notably in mandatory and voluntary Medicare demonstrations focused on reducing the total cost of care and incentivizing providers to work together to manage patients
- The increasing attention that federal policy imperatives are giving to PAC in efforts to improve healthcare costs and quality
- The major transformation within the PAC sector due to external forces that are disrupting the industry
Why Are PAC Utilization and Spending on the Rise?
The growing elderly population is a key driver of the increasing PAC utilization in the United States. By 2050, one in five Americans will be 65 or older—and that population will double by 2060. The Medicare population that requires PAC after a hospital stay also is on the rise, increasing from 37.5% in 2008 to 42% in 2015.
The increasing prevalence of chronic conditions—particularly in the 65 and older population—is also driving the growth in PAC utilization. Almost 88% of the 65-74 year old population have one or more chronic conditions. In fact, a quarter of Medicare beneficiaries have five or more chronic conditions, such as hypertension, diabetes, cancer, heart disease and/or arthritis. It is hard to conceive of providing care only within inpatient settings for so many grappling with long-term chronic conditions.
These factors are combining to drive increased demand for PAC, which is projected to continue growing over the next decade. Between 2012 and 2021, service demand is expected to shift away from hospitals and toward outpatient and PAC settings. The most significant growth will be in home care, with demand expected to increase by 35%.
As PAC utilization has risen, Medicare spending on PAC services has experienced exponential increases. Medicare now spends nearly $60 billion per year, or 12% of its total expenditures, on PAC services. In fact, Medicare drives the economics of PAC providers, covering nearly three-quarters of discharges to PAC. Across all healthcare providers, Medicare accounts for about 39% of their income streams. That number soars to 73% for PAC providers.
Variations in PAC account for 73% of the variation in total Medicare spending. For example, top-performing skilled nursing facilities have an average length of stay of 24 days, while low performers have an average stay of 34 days—a $4,000 per admission difference.
There are also wide variations in placement decisions and quality measures. There is no unified approach to placement decisions, and similar patients can be placed in different settings with different care plans. Quality measures are also inconsistent, with quality assessed differently across different sites of care.
PAC Is an Integral Part of Payment and Delivery System Reform
The new demonstrations designed to reduce the cost of care while improving outcomes have begun to reveal how important PAC is in the healthcare system. Consider readmission reductions. Readmission during a PAC episode more than doubles the Medicare payment and results in readmission penalties for acute care providers. If we look at bundled payments, it’s clear that an episode-based payment model requires a seamless transition to a PAC setting. Even accountable care organizations have begun to think differently about PAC, with some providing incentives for providers to manage the total cost of care.
The Centers for Medicare & Medicaid Services (CMS) is testing several voluntary and mandatory Medicare bundled payment models that link acute and PAC providers and rationalize utilization of PAC services. With a new administration in place, all demonstrations are under review, but the momentum toward value-based reimbursement models remains strong.
Care Coordination: A Key Strategy for PAC Providers
Providers increasingly are adopting best practices in care coordination that optimize transitions from the hospital to the PAC setting. Providers are realizing that they need to have specific goals to demonstrate what they are able to accomplish through care management and drive continuous process improvements. They also need to target their care management resources more effectively, ensure care managers are well trained and fully embedded within care teams, use evidence-based care management interventions, and share accountability across providers.
Policymaker Concerns Led to the Bipartisan IMPACT Act
Four areas have become key concerns for federal policymakers in the PAC arena:
- Reimbursement. Policymakers are concerned about providers attempting to maximize reimbursement and, in some cases, engaging in fraudulent activity.
- Tightening of regulations. Dramatic growth in the Medicare PAC program has led to tighter coverage and payment rules, provider moratoriums (such as the moratorium on new entrants to long-term acute care hospitals through the end of 2017), and increased quality reporting.
- Misplaced incentives. The provision of excess services, a reluctance to take the most medically complex patients and decisions that are not clinically optimal all can result from misplaced incentives.
- Overpayments. The PAC sector has historically high margins leading to efforts aimed at reducing reimbursement growth rates and shrinking margins.
This set of shared concerns led to bipartisan support of the IMPACT Act. Passed in September 2014, the Act seeks to reduce overall PAC spending and tie payments to patient characteristics and outcomes-based performance measurement. It calls for a unified, site-neutral payment system; a uniform assessment tool; consistent public quality reporting; and incentives to serve higher-need populations.
In an April 2017 update, MedPAC unanimously approved a recommendation to move ahead with implementing the new unified payment system beginning in 2021, with a three-year transition. The five-year goal is to lower spending between $5 billion and $10 billion.
Key PAC Developments
Given the challenging economics and the need to scale in the marketplace, a key development in the PAC market has been increasing consolidation. Other major developments include:
- Building partnerships and collaborations with integrated delivery systems
- Offering care management to smooth transitions
- Customizing clinical protocols and being more nimble
- Assessing risk arrangements and ensuring accountability for costs
- Recognizing the diversity of populations and the need for targeted interventions
- Facilitating information exchange
- Measuring, reporting, and continually improving quality and satisfaction levels
- Offering services across a continuum and addressing the social determinants of health
- Applying technology, such as telemarketing and wearables
- Heightening private equity interest
Breaking Down the Silos Between Acute Care and PAC
There is increasing focus on bridging the gap between acute care and PAC delivery, as well as developing more integrated provider relationships. In particular, demographic, disease state and clinical acuity changes, as well as the shift in payers’ goals and financial incentives, are pushing providers to break down the silos in care delivery and view care more holistically and from the patient’s perspective. For health systems and PAC providers, that means developing more aligned upstream and downstream relationships that focus on improving processes during transitions of care and better managing the entire episode of care.
Hospitals can no longer just think about what happens inside their own walls, particularly because readmissions hit their bottom lines, either through financial penalties or performance-based incentives. PAC providers also need to change their approach to think more strategically about enhancing their relationships with their referral sources.
Health System Objectives for PACs
Hospitals are typically the drivers of tighter relationships between acute care and PAC providers. Their key goals include reducing the average length of stay, improving patients’ clinical outcomes and functional status, enhancing the management of financially high-risk patients, creating market differentiation, improving the patient experience, and managing the continuum of care through a population health approach.
Hospitals and health systems considering enhancing their PAC relationships first must decide whether they will build a PAC network in-house or buy outside PAC services. Both approaches are time- and resource-intensive and come with financial and legal risks. Therefore, most hospitals choose to integrate with PAC providers through partnerships that align across institutional and community care settings.
The formation of preferred PAC networks is still in its early stages, although there have been some leader health systems that have made significant progress in integrating with their PAC partners. In addition, payers have begun to put incentives in place for delivering high-quality, low-cost, coordinated care that minimizes readmissions, reduces average length of stay and increases hospital throughput. These incentives have been instrumental in driving hospitals’ growing focus on integrating PAC services into their clinical delivery models.
What Is a PAC Preferred Provider Network?
A PAC preferred provider network is a partnership between hospitals or health systems and PAC providers focused on optimizing the patient experience for the treatment of conditions that extend across acute and PAC sites of care. Elements include a shared commitment to provide quality care and optimize the patient experience across settings, as well as shared policies and procedures regarding acute and PAC care, including transitions between them.
PAC preferred provider networks offer significant advantages to hospitals and PAC providers. Hospitals benefit from immediate and consistent access to PAC services, increased throughput, enhanced efficiency, seamless care coordination, reduced readmissions and unnecessary emergency room visits, and improved patient loyalty. PAC providers benefit from more consistent and predictable referral volumes, better access to clinical support, competitive differentiation, enhanced preparation for the acute/PAC bundled reimbursement models, and brand opportunities that come from network participation.
Most importantly, PAC provider networks offer mutual benefits to acute and PAC providers. Joint benefits include sharing patient data, jointly developing quality initiatives, sharing protocols and clinical pathways to maximize treatment effectiveness, ensuring consistent patient transfer processes, managing patients collaboratively, marketing care services based on quality outcomes, and preparing for population health and value-based payment initiatives.
Developing a PAC Preferred Provider Network
Let’s look at a high-level process for setting up PAC preferred provider networks. We will view the process through the lens of a health system, but neither the process nor the networks are one directional. In fact, PAC Preferred Provider Networks are only successful to the extent that the participants are fully collaborative. There are three sequential steps that are fundamental to establishing effective PAC Preferred Provider Networks:
Step 1: Baseline Assessment of the PAC Population. This step includes documenting organizational objectives for working with PAC providers to manage populations, understanding the discharge process and transition to PAC providers from a frontline perspective, and developing a fact-based assessment of the Medicare PAC populations and the demand for PAC services. At this stage, it’s critical to identify where patients go for PAC today and to map the competitive landscape.
Step 2: Preferred Provider Network Architecture and Partners. During this phase, it’s essential to understand the performance and capabilities of local PAC providers and their potential for inclusion in the network; identify the objectives and requirements for network participation; and define the terms of participation, including policies related to discharge planning, patient choice, information sharing, care coordination and clinical support. It’s important at this stage to consider how best to build on organizational strengths and mitigate strategic weaknesses. This phase also is the time to identify potential partners and their requirements.
In evaluating possible partners, consider quantitative elements, such as scope and volume (i.e., number of beds, patient acuity, geographic position and average length of stay); quality and safety measures, including Medicare-reported quality ratings; patient experience and reputation (i.e., financial performance, patient experience surveys and payers accepted); and miscellaneous factors, such as data-sharing capabilities, languages spoken and willingness to integrate electronic medical records. In addition, don’t overlook important qualitative elements such as vision, culture and approaches to care.
Step 3: Ongoing Process Improvement. During step 3, jointly develop a quality scorecard with shared metrics and benchmarks over time, adopt a culture of continuous process improvement, and revisit and update policies and procedures at least once a year. At this phase, determine how to keep all partners accountable for quality and performance and ensure ongoing collaboration and adoption of best practices.
Conclusion: Lessons Learned
Important lessons can be learned from those who have effectively established PAC Preferred Provider Networks across the country. The keys to success include understanding that:
- A collaborative development process between acute and PAC partners is critical.
- A one-size-fits-all approach may not work. Tailored approaches and agreements between a hospital and an individual PAC provider may be needed.
- Investing the time to appreciate individual goals and document shared objectives and requirements for network participation up front streamlines network formation.
- Frontline staff (such as physicians, nurses and social workers) are the lynchpins of successful relationships between acute and PAC providers—and should be active participants in forming preferred provider networks.
- It is critical to continually monitor, evaluate and adjust strategies around improving care quality and patient communications.