A Focus On Short-Stay Care Makes Medical and Financial Sense
Nursing homes may continue to be a last stop for some elderly patients, but there’s an increasing need for short-stay nursing or rehabilitation centers for a broader base of consumers—specifically younger seniors who get well enough to go home. Short-stay rehabilitation services also provide much-needed additional revenue.
“Basically, nursing homes are in two businesses: one for long-stay patients; the other, short-stay patients,” said property acquisition advisor Mark Davis, President of Healthcare Transactions Group in Baltimore, Maryland. “Nobody wants to be in the long-stay business anymore. It’s unsustainable, because revenues are too low. Rehab care has become a core service for nursing homes both to grow market share and to maintain it. Increasing the number of short-stay units has become a necessity.” Therefore, some skilled nursing facilities are converting existing units to short-stay rehab care to appeal to a broader consumer base, boost occupancy and increase cash flow.
Inevitably, that trend will continue—for a couple of reasons. First, the need for short-term care will increase simply because of the growing population of people from whom to draw. The expanding population of seniors, in particular, will likely result in a greater need for short-term care (e.g., while recovering from joint replacements). Second, the margins are much greater for short-stay patients. By increasing its percentage of short-stay beds, the facility can afford to care for its long-stay patients.
At the same time, technology and medical practices continue to make treatments less specialized and more able to be performed in less expensive, less regulated settings. “Ortho patients are in and out of our rehab center in Duluth [Minnesota] very quickly,” said Mick Finn, Senior Vice President of Operations at Ecumen, based in Shoreview, Minnesota. “We’re now looking at doing some of the therapy currently done in that skilled nursing environment in a housing-with-services environment.”
Ecumen’s overall organizational vision is to change the structure within which people are aging in Minnesota. While admittedly a “lofty concept,” Finn explained that the guiding principle of that business model is to allow people, as they age, to continue to make their own choices about where they live, how they live and what occupies their days. On the housing-with-services side of Ecumen’s business, that concept works just fine. In the skilled nursing environment, that concept can’t be applied either legally or financially. “So we have a business model that we can’t implement in several of our properties,” Finn said. Ecumen currently operates 74 communities in Minnesota, Wisconsin, Iowa, North Dakota and Idaho; 56 are independent living and/or assisted living communities, and 18 are skilled nursing facilities.
What’s the goal?
Purely from a business standpoint, the ideal skilled nursing facility would have 100% short-stay units. And that’s not entirely unreasonable. Ecumen has actually accomplished that level at The Fountains at Lake Shore, its short-stay rehab center in Duluth, where a 140-bed nursing home was transformed to a 60-bed therapy-only operation.
“Currently, our nursing homes average 35% short-stay and 65% extended stay,” said Finn, “and the average age of the short-term stay patient is about 20 years younger than on the extended-care side. Our ultimate goal is to have 100% short-stay patients in all our nursing homes. Extended-stay patients would be moved to our assisted living or memory care facilities or, ideally, back home.”
Medicare/Medicaid reimbursements for short-term vs. long-term care can differ by more than $300 per day. Ecumen averages $165 per day from Medicaid for a long-term bed and, depending on the category of care, up to $500 per day from Medicare for a short-term stay. “Right now,” Finn noted, “we actually get a margin on the Medicare side but a negative margin on the Medicaid side—which is why the 35%-65% ratio works. We can make up the difference with 35% short-stay beds.”
While Ecumen is heading toward a 100% short-stay goal, it is first concentrating on determining the potential uses for its skilled nursing facilities, how traffic compares to the number of licensed beds available, and how to make the best use of the licensed beds in its various nursing homes. “It’s very much a community-by-community, town-by-town, market-by-market approach,” explained Finn.
“Health care is local,” Davis agreed, “so providers do need to define the demand and the services that are needed in the particular community. If not, they’ll just waste a lot of money.” Once the demand and needs are determined, the facility can then develop a unit that focuses on those services or product lines.
For Ecumen, that analysis involves talking with hospitals. “While Medicare reimbursements look very good to us, hospitals consider them pretty bad,” said Finn. “So hospitals want to move patients out as quickly as possible. As a result, we’re having some pretty cooperative conversations with hospitals. We’re looking to find out how many of their patients we can rely on in a year’s time—patients whom we can take care of safely and with good outcomes—to give us a starting point for the number of beds to configure around those people.”
Ecumen is consciously trying to match the overall number of licensed nursing beds in each of its communities to the number of legitimate customers for those beds. For example, fewer licensed beds are required in small rural communities, where people generally leave the area to get medical services, than in locations where the local hospital has a strong orthopedic unit, which generates a greater need for sub-acute services.
At the same time, there are other opportunities to explore, particularly in chronic disease management where people with complications sometimes go to the hospital emergency room for treatment. “Those patients might be better served if we were to ramp up our skilled nursing facilities to suit their needs,” Finn said. “So we’re actively seeking out those other niches of opportunity.”
Once market studies determine the number of beds required to saturate its various markets, Ecumen stands ready to turn back any unused licenses to the state. “Just because we have 100 licensed beds in a facility doesn’t mean we’re hell-bent on filling 100 beds,” Finn said. “If the community needs 60 skilled nursing beds, we’ll downsize to 60 beds.”
Licenses can be very expensive. And if the licensed facility can’t attract customers who can pay for the cost of carrying the license, it becomes an economic issue. That is precisely why Ecumen is looking to increase the percentage of its licensed beds that serve those who legitimately need sub-acute care and who are usually short-stay patients. People needing extended care for chronic health-care needs, who traditionally would have been served in the nursing home, will instead be cared for under Ecumen’s housing services arrangements—assisted living, independent living, catering, etc.
Of course, some folks will have conditions that are so complicated that extended care in the nursing home will continue to be the right place for them. New patients, however, will be filtered out during the admissions process to avoid long-stay nursing home care whenever possible. The issue will then become knowing what care or treatments can be provided safely in a home setting and what needs to be done in a nursing home or hospital.
Conversion vs. new construction
Whether to convert units or build a new physical plant for short-term/rehabilitative care depends mainly on state certificate-of-need constraints. Some states have put a moratorium on adding beds to nursing homes. Minnesota has also instituted an incentive program that increases the Medicaid rate paid to nursing homes that give up licensed beds. Otherwise, unless the provider is building a brand-new facility, conversion seems to be the customary approach—if only because of the lower capital cost.
Although the conversion process doesn’t take long, renovations can be substantial. Short-stay nursing care patients generally need a private room that is segregated from the general nursing home population but has access to exercise equipment and therapeutic facilities. Renovations may also involve creating separate entrances, common areas, and dining facilities. “Our average cost of a room conversion runs about $3,000 or $4,000,” Finn estimated, “and we can turn it around pretty quickly. One advantage of some of the old-style nursing home floor plans is that they often lend themselves to wings and wards.”
Once a nursing home accommodates an increased number of short-stay patients, should it reposition the entire facility? “Repositioning doesn’t help all that much,” said Davis, “because the facility is usually marketing to discharge planners at hospitals. They know who you are and what you offer. And they know you’ve had a makeover and are now providing the specialty services.”
Nevertheless, the reputation of Ecumen’s short-stay rehab center in Duluth is so high that it’s actually influencing the discharge planning process at local hospitals. “People are even scheduling elective surgery around openings there,” said Finn.
