Article by Scott Plumb
When trying to peer into the crystal ball and predict the future of senior care over the next decade, I’m reminded of my favorite sticker on the back bumper of a car, usually driven by a man:
I May Be Lost, But I’m Making Record Time!!
It’s hard to predict exactly where senior care will go over the next decade, but wherever that might be, it appears to be getting there quickly. It is also instructive to examine the strategies of the past, at least as they relate to building and locating a nursing home, in order to predict the strategies of the future.
Years ago, the goal was to build your nursing home in an affluent community, maintain a reasonably high private pay census, and use governmental payers, Medicare and Medicaid, only when necessary. Then, in the 1980s when nursing shortages threatened the quality of care that homes could provide, the strategy shifted to building your home close to public transportation routes. Then, a few years later, when recessions helped to ebb the manpower shortage, the strategy shifted yet again. Hospital DRG payments put a premium on early discharge, and nursing homes woke up to the wonders of Medicare rates and post-acute care. The strategy then became to locate your home close to, or even better, within an acute care hospital, so that you could protect your referral sources and improve your payer mix by increasing Medicare usage.
Now the focus appears to be shifting yet again. The growth of managed care, and in particular the increasing dominance of Medicare accountable care organizations (ACOs) and health maintenance organizations (HMOs), has resulted in the creation of preferred provider systems and subtle “steering” of post-acute patients to favored skilled nursing facilities (SNFs). When combined with the decreasing demand for traditional facility-based long-term care services, and the explosion of home and community-based alternatives to such care, the “gentlemanly” competition for private pay patients that characterized the past has given way to “all or nothing” competition for higher rate, short-stay patients to occupy increasingly vacant beds.
In the late 1980s, Massachusetts had close to 600 SNFs. Today that number is just over 400. One-third of all facilities have closed. Average lengths of stay have plummeted as providers focus on short-stay patients. Even longer stay patients, who rely on Medicaid to pay for their care, can be cared for at home much longer than in the past and are entering SNFs later in their illnesses. Keeping beds full, maintaining a decent payer mix, controlling nursing costs, all these keys to success in the past are becoming harder to achieve.
We can discern a number of trends that will characterize competition and care over the next decade or two. Some are obvious (the need for maintaining high-quality care) and some are a little more subtle (service diversification as a reaction to consumers wish to age in place).
- The need to maintain high-quality care. If providers are unable to maintain consistent, high-quality care at all points in the care continuum, the rest won’t matter. Baby boomers will have more personal resources than other generations, and they will be far more demanding. Customer satisfaction will revolve around the entire experience and the care outputs, rather than the inputs. Whether a patient was satisfied that their rehabilitative services properly prepared them to return home will be valued far more than whether they liked the food.
- The need for providers to move their care focus “out to the ends and away from the middle.” Consumer preferences and managed care payers are moving providers to the ends of the care spectrum and away from the traditional middle of the continuum. Higher margin, Medicare-dominated post-acute care constitutes one end of that care spectrum, and Medicare-funded hospice and end-of-life care constitute the other. Low margin, Medicaid-dominated, longer stay, custodial care of the chronically ill may well constitute a providers’ “mission,” but unless it is accompanied by some more profitable care on the margins, the “mission” will be short-lived.
- The wish by consumers to “age in place.” The growth of continuing care retirement facilities and high-end assisted living services located on single care campuses are testament to this force. Consumers don’t want to have to move every time their care needs change. They want a seamless, complete care continuum that can handle acute, primary and long-term care. Providers with the management skills and capital necessary to do this will be well positioned for the future.
- The growing dominance of home and community-based care. People want to live at home as long as possible. For a long time, the goal of “community first” was tempered by the lack of available alternatives to facility-based care, particularly for those of moderate means. No longer is that the case. The growth of federal and state subsidized home care services and waiver programs, Money Follows the Person programs, state rebalancing initiatives, and the growth of technology have allowed people to stay at home longer. While facility-based care will still be necessary for those requiring 24-hour skilled care, there can be no denying that demand for traditional facility-based long-term care will continue to decline.
- The need for providers to diversify and control (either physically or virtually) as much of the care continuum as possible will be driven by consumers, payers, and competitive and economic forces. As old cowboy movies can attest to, when attacked, circle the wagons! Trying to negotiate with a giant ACO or hospital system as a single provider will be increasingly suicidal. In numbers, there will be strength. It is clear that the future will belong to systems. To remain competitive and viable, long-term care providers will have to focus on two strategies, one external and one internal. Externally, providers must look to forming alliances with other providers, both facility-based and home and community care based, to increase their competitiveness vis-à-vis large purchasers such as ACOs or managed care systems. Whether done through network development, mergers, or some other form of interrelationship, steps must be taken to change the power imbalance that characterizes current operations. Internally, providers must try to diversify their services and service inputs, both vertically and horizontally. Having internal control over service inputs such as lab services, drugs, therapy, etc. will allow greater quality control and economies of scale. Having a wider base of services, from home and community-based services such as home care, hospice care, and out-patient rehabilitation, through housing services such as independent living units and assisted living residences, through traditional facility-based care will allow providers to diversify their funding streams, protect their private pay market, and better compete in the bundled care, risk-based payment systems of the future. When managed care payers ask what you are doing to lower rehospitalization rates, you can emphasize that your system allows you to follow the patient through all stages of the post-hospital experience, not just the one- to two-week nursing facility stay. Lastly, payers will be looking to contract with diversified systems. If you were a contract manager for a senior care organization (SCO), would you rather contract with 10 different providers, all of whom do 5 different things, or 50 providers, all of whom do just one thing?
Baby boomers will begin turning 80 in just over 10 years. They will be a demanding lot, looking for high-quality care and maximum choice. Post-acute and long-term care providers will need to adjust their care practices to survive. Concierge care, integrated services, creative use of technology such as electronic medical systems and virtual physicians, these are services baby boomers will be looking for and valuing. To adapt is to flourish, to resist change is to wither and die.
Scott Plumb: April 28, 2015
Currently: Managing Partner, Strategic Care Solutions
Formerly: Senior Vice President, Massachusetts Senior Care Association