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 Recent data from the National Investment Center for Seniors Housing & Care (NIC) demonstrate that Medicare patient day mix is declining and suggest that health care payment and delivery policy changes over the past couple of years may have contributed to that decline, along with other market forces.

The second half of 2017 has seen a number of new proposals from the Centers for Medicare & Medicaid Services (CMS) that could continue to impact skilled nursing properties, especially Medicare patient day mix, in 2018.

In August, CMS proposed to do away with mandatory bundled payments in some markets and eliminate new bundles scheduled to launch in 2018. On Sept. 11, the comment period closed for a proposed rule that would make it even easier for accountable care organizations (ACOs) to send patients to a nursing center without the usual three-day-stay rule required for Medicare to cover the cost of the first 20 days. 

Meanwhile, the comment period closed on the same day for a second proposed rule, Calendar Year 2018 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System. The rule proposes changes that would allow patients to use their Medicare benefits to pay for joint replacement surgery in an outpatient setting.

Currently knee and hip replacements are only eligible for Medicare coverage if they take place in a hospital; these procedures live on the “inpatient-only” (IPO) list. The measure proposes to allow patients to receive knee replacements in either an inpatient or outpatient setting and seeks comment on whether to do the same for hip replacements.

These three proposals may have an impact on Medicare patient day mix. The first two proposals have the potential to increase Medicare patient days, while the third could result in some downward pressure on that metric. Operators should be prepared to address the impact these additional policies could have on Medicare patient day mix in 2018.

NIC’s second-quarter “2017 Skilled Nursing Data Report” demonstrates that Medicare patient day mix is on the decline and reached its lowest point in the series in June 2017, with the decline beginning in early 2015. Many factors can explain the decline, such as competition from home health, demographics, and improvements in technology. Nonetheless, the timing of some CMS policies does correspond with a decline in Medicare patient day mix, which fell from 16.5 percent in February 2015 to 12.7 percent in June 2017.

Pressure on Medicare length of stay in nursing centers is one driver among many of lower Medicare patient day mix and could have been impacted by the implementation of the Comprehensive Care for Joint Replacement (CJR) and Bundled Payment for Care Improvement Initiative (BPCI). NIC’s data suggest that the implementation of Phase 2 of the BPCI Models 2 and 3, which pay for skilled nursing care as part of an episodic payment, may have influenced the decline in Medicare patient day mix.

The timeline for Phase 2, the “risk-bearing” stage of the BPCI models, was announced in December 2014 and required participants to transition by July 2015, during which time Medicare patient day mix began its decline, according to NIC’s data.

Shortly thereafter, CJR was implemented in April 2016, during which time Medicare patient day mix continued to decrease. While CMS policies are not the only driver of patient day mix, the dates of implementation do correlate with the downward trend in Medicare patient mix since February 2015.

Looking forward, new policies in 2018 could also impact Medicare patient day mix. The first two proposed rules mentioned above could give a boost to Medicare mix in 2018. The rule cutting in half the number of mandatory markets for CJR may lead to an increase in Medicare patient days in affected markets.

Under this model, hospitals and post-acute providers are given the incentive to keep the patient for the shortest possible stay to rehab the patient well enough to avoid a rehospitalization. In other words, bundled payments aim to produce the most efficient post-acute care delivery, which may translate into fewer Medicare patient days in the skilled nursing setting where bundles are mandatory. 

Reducing the number of mandatory markets for bundled payments could influence the recent decline in Medicare patient day mix. Nursing centers participating in ACOs may see an increase in Medicare patient days, as the proposed rule aims to make waiving the three-day stay rule even easier when discharging to a participating Five-Star-plus skilled nursing center. Operators may be relieved to know that these policies may offset some losses to short-term stay admissions created by making knee replacements outpatient-eligible, which would begin January 2018. 

Furthermore, removing knee and hip replacements from the IPO list is not without its detractors. Some commenters on the proposed rule expressed safety concerns about the proposition. One consideration is that Medicare beneficiaries are over 65, which means they are more likely to have complicating factors that make the outpatient procedure riskier.

Most patients today who get a knee replacement in an outpatient center are younger and healthier and have the resources and supports to get proper physical therapy and rehab at home or in the community.

Older patients who desire to use their Medicare benefits to pay for outpatient knee replacements may not have the same resources at home and represent a higher-risk population than those in their 50s. CMS may consider these arguments when drafting the final rule.

According to the Healthcare Cost and Utilization Project, in 2013, prior to BPCI and CJR, 71 percent of patients undergoing hip and knee replacements were discharged to some type of post-acute care, with 37 percent of those discharges going to skilled nursing facilities. The outpatient eligibility of lower-extremity replacement procedures, which made up about 10 percent of all post-acute discharges in 2013, could also impact Medicare patient day mix.

Although the proposed rule does not explicitly state that patients undergoing knee replacement in an outpatient setting would be ineligible for skilled nursing short-term rehab, that’s likely to be the case for most because traditional Medicare typically only pays for a nursing center rehab stay if there was a qualifying hospitalization to trigger the admission.

If the proposed rule is adopted as written, some knee replacement patients on Medicare may avoid a skilled nursing stay because of their preference to undergo the procedure in an outpatient setting.

CMS policy is not the only mitigating factor possibly leading to low Medicare patient day mix. 

Demographics, improvements in technology, and consumer preferences may also contribute to changes in this metric. Operators should be constantly prepared to adapt to health care payment and delivery changes, however, and should follow developments at CMS closely. In particular, providers should monitor

how their local markets will be impacted in 2018 by these policy changes.

Skilled nursing providers in markets where CJR is no longer mandatory and where ACOs are particularly active may see some boosts to Medicare patient day mix. On the other hand, providers in markets with a large preexisting supply of outpatient orthopedic facilities could lose some post-acute consumers under the new policy.

In a rapidly evolving health care market at the mercy of both federal rules and the local market, the providers that can take advantage of new policies and react quickly to new regulations will most certainly maintain an advantage over their peers.