Senior Living Business: Making Skilled Nursing Care Work
Whether a skilled nursing facility is publicly or privately owned — or part of a large multi-facility, small regional for-profit operation, or one of the array of not-for-profits — the fundamental role of skilled nursing needs to change, according to Dale M. Thompson, president and CEO of Benedictine Health System (BHS). "We recognize the need to downsize and upgrade," he says, "which means, essentially, taking care of higher acuity patients for a shorter period of time." BHS has trimmed the average length of stay in many of its skilled nursing facilities to 14 to 24 days.
Nursing home operators who can envision a facility that is half its size, with private rooms, will be capable of offering a high-quality care setting for higher acuity patients and, thereby, become good partners in the whole health care system, suggests Thompson. And because reimbursements for skilled nursing patients through Medicare are typically much better than those through Medicaid, the nursing home operation is much more likely to be financially viable.
BHS has been "downsizing and upgrading" through its Benedictine Living Community model — a continuum campus that includes skilled nursing, assisted living, and senior living components — along with hospital-aligned skilled nursing operations that are often physically attached to hospital campuses. BHS owns several hospitals, but most of its partnerships are co-sponsored relationships with outside hospitals, where BHS provides the discharge destination on the hospital campus.
Having a successful partnership requires working out care protocols with the medical directors, the physicians (who are usually part of an integrated physician health system), and the lead clinical people involved in the skilled nursing setting in the hospitals. "The nursing expectations and clinical pathways that lead to an appropriate care setting are an important part of having a really good model in place — and are often more complicated than building a new building," Thompson says. Those hospital relationships have become the cornerstone of success for BHS in the skilled nursing arena.
"Not-for-profits often underestimate the power of their culture, mission, and values," Thompson adds. "They need to harness that energy. They need to be more entrepreneurial. Not-for-profits are often single-site facilities, but they have both a natural ability to affiliate or align with other not-for-profits and tremendous opportunities to co-sponsor care with other entities."
The impact of Medicaid
Two-thirds of the people who are admitted to nursing homes typically have some part of their care paid for by Medicaid, and that has been the case since the program came into being in the late 1960s, according to Thompson. "Even though part of the care for some of those patients is paid for privately, Medicaid clearly represents more than 50 percent of nursing home revenue," he says, "and everybody will agree that the Medicaid system is in shambles. Depending on whose statistics you believe, per-patient-day reimbursement from Medicaid is $13 to $20 less than actual costs."
Although dependence on Medicaid reimbursement is a fundamental problem for nursing home providers, the increase in dual-eligible payment opportunities represents the bright spot on the horizon. In Minnesota and five other states (so far), Medicare and Medicaid have come together as a single benefit package under a health plan.
"In some of those locations, we have become the care coordinator of this dual-eligible benefit," says Thompson. "In one of our living community campuses, for example, we coordinate the care — 24 hours a day and 7 days a week — of 1,100 people who are part of a health plan that combines Medicare and Medicaid benefits. If long-term care financing were to move in a direction where private sector health plans pick up on capitated risk – particularly through the integration of Medicare and Medicaid – then care providers will see a whole new day. We’ll no longer be preoccupied with setting rates and building new buildings. Rather, we’ll be able to focus on the patient, on delivering the services that they need and on being responsible for their care." That, in itself, is certainly a breath of fresh air.
The Opportunity in Medicare
Medicare continues to provide the most appropriate reimbursement of any government payer program and, therefore, is at the heart of the opportunity for skilled nursing providers. Unfortunately, for whatever reason, some nursing homes either didn’t catch on to that opportunity in the first place or have gotten behind the times in terms of being geared up for Medicare.
Traditionally, not-for-profit nursing homes were the preferred provider in a community. "They had strong support and were often 99 to 100 percent full," says Thompson. "They weren’t concerned about admitting Medicare patients, because they didn’t have the available beds. Facilities that put themselves in that spot have a lot of catching up to do or will find themselves out of business. In Minnesota, 60 nursing facilities have closed in the last five to eight years – locked the door and thrown away the key. And much of that has had to do with their not being progressive enough."
On the other hand, long-term care is shifting to other settings and styles that are geared, in particular, to keeping elderly people healthy and independent in their own homes. It makes sense, then, to shrink the number of skilled beds and reshape them into a higher acuity, Medicare-supported setting while also pursuing opportunities that provide people with the lifestyle and support they need for independent living.
The view from both sides
Prior to heading up BHS, Thompson co-founded a for-profit, regional, multi-facility organization. "We started it from scratch and ended up with 25 facilities," he notes. "BHS had also grown over the years and was looking to put in place a long-term management group. BHS first acquired our management company and then, over time, purchased our facilities and converted them to Catholic-sponsored, long-term care facilities. I came along with the store. And strange as it may seem, we felt an alignment of culture on both sides, despite the not-for-profit/for-profit difference in our business models."
The Sisters of St. Scholastica Monastery in Duluth, Minnesota, created BHS in 1985 to further their health care ministry. The Benedictine organization had successfully — from both a fiscal and service perspective — delivered health care services in the region since opening its first hospital in Duluth in 1888.
Today, BHS operates 10 acute care hospitals and about 50 long-term care campuses in Minnesota, North Dakota, South Dakota, Idaho, Wisconsin, Illinois, Missouri, and Kansas. On nearly all of the long-term care campuses, the skilled nursing facility is the key component. "One or two CCRCs don’t have skilled nursing on the campus," says Thompson, "although we wish they did and will try to get them there."
Having experienced both sides of the business, Thompson recognizes the advantages that not-for-profits have over their for-profit counterparts. "Some of the most creative things in senior housing were originated, and continue to happen today, in the not-for-profit sector," he says, "but not-for-profits can be a bit independent — to their own detriment. Not-for-profits must be aggressive and entrepreneurial with regard to the transformation of long-term care, and there’s clearly enough leadership to accomplish that."
In Minnesota, a big chunk of the industry actually seems to be migrating to the not-for-profit side. Not-for-profit groups have sponsored or reshaped some for-profit facilities that were having difficulties. At one time, the Minnesota nursing home industry was about 50 percent not-for-profit, according to Thompson. While that’s an anomaly — in most states, the industry has been 10 to 20 percent not-for-profit — Minnesota has now migrated to about 75 percent not-for-profit. And in North Dakota, while a small state in terms of census, 77 of the 83 nursing homes are not-for-profit operations.
"Not-for-profits have access to tax-exempt debt, community support, and philanthropy," Thompson points out. "The philanthropic response from the communities that we serve has increased four-fold in the last two years, so that’s a huge benefit. And while mission and values are particularly strong in not-for-profit organizations, it’s certainly not tax status that determines good care. It’s the commitment and passion of good people — and really good people work in both camps."
Thompson expects to see more consolidation, collaborations, and co-sponsorships in the not-for-profit world. "At BHS, we find that one of our greatest opportunities going forward is to collaborate with other Catholic-sponsoring organizations," he says. Of the 800 Catholic long-term care facilities across America, about half are part of large systems and the rest are single, freestanding units. BHS has had a lot of inquiries from organizations that want to align their long-term care facilities with its system, particularly its hospitals. "We see lots of opportunity in the not-for-profit world," he adds.
Going forward, then, BHS is banking on changing the role of its nursing homes by providing higher acuity care in partnership with physicians and hospitals. "We’ve found that that scenario provides us with adequate resources to do a good job," says Thompson, "and have a little bit left over at the end of the day. If we, as an industry, can get beyond the real estate and become the community’s go-to long-term care facility — one that combines health-plan benefits with a care-coordination program that focuses on what people need and want — then we’ll find success in this business. There’s certainly demand for what we do, and we’re barely seeing the tip of the iceberg. The long-term care business is the right place to be today."