PPS clouds future of skilled nursing as hospitals anticipate losing millions

Financial shortfalls could force some providers to close doors

Although the prospective payment system (PPS) won’t become a reality for many rehab administrators until October 2000, skilled nursing facilities (SNFs) have been dealing with the impact of a PPS reimbursement system since July 1998. The picture they paint isn’t pretty. Administrators interviewed by Rehab Continuum Report say they anticipate financial losses from their SNFs that run in the millions, and many question whether they will be able to remain in the SNF business.

"We’re estimating that for fiscal year 1999, it [the PPS for skilled nursing] will have a $1.4 million impact," says Chris Karam, chief operating officer of Christus St. Michael Health System in Texarkana, TX. "If we’re not successful in providing these services, the future of our skilled nursing facility would be questioned. That would be unfortunate, because there is a need in the community."

Jim McCaslin, FACHE, director of Chest nut Hill Rehab Hospital in Wyndmoor, PA, says reimbursement for hospital-operated SNFs has dropped dramatically since the PPS was implemented. "From what I can tell, the average Resource Utilization Group [RUG] reimbursement in a typical hospital-based SNF generates about $250 per day," he says. That contrasts sharply with data from the Health Care Financing Administration (HCFA) showing that 1996 average costs for hospital-based SNFs totaled $441 per patient per day — $292 for routine costs and $149 for ancillary costs, McCaslin says.

The picture isn’t as harsh for freestanding SNFs. McCaslin says HCFA figures show that average 1996 costs for the freestanding facilities were $254 per patient per day, including $129 in routine costs and $125 in ancillary costs.

Karam concurs. He says costs at St. Michael’s SNF typically are higher than those at a freestanding SNF. "Because we are associated with the full continuum of care, our patients are a lot more complex. Where you might see some nursing homes with two to four nursing hours per patient day, our goal is four to six nursing hours per patient day. Community SNFs aren’t taking them because they’re more [medically] complex, and home health and nursing homes aren’t an option. We’re committed to taking care of these patients, and it’s part of our mission [as a nonprofit]," he says.

It’s time to look at other options

However, Karam is investigating several options because St. Michael can’t afford to operate with that kind of financial loss, he says. Those options include negotiating supply contracts to increase St. Michael’s efficiency and looking at improving physician utilization. "But that’s a tough one, because physician habits don’t change overnight," he adds.

St. Michael is working with its case management staff and with the medical directors on the system’s utilization management committee to make sure the most appropriate venue for care is being used for each patient, Karam says. The system also has an 80-bed rehab hospital, a 239-bed acute care hospital, long-term care programs, day rehab programs, home health subsidiaries, and a hospice.

The hospital also is developing a request for proposal (RFP) to build a referral relationship with a local nursing home in the community, Karam says. St. Michael hopes to enter a contract relationship with a nursing home that spells out expectations for quality of care and patient satisfaction. "It might be that they could take care of [some of] these patients less expensively because their cost structure is less than ours," he explains. "And it could be a win-win for them [the nursing home] to enhance their reputation in the community."

Training billers in the new PPS coding system has been a major effort at Chestnut Hill, McCaslin says. Under the RUGS system, these facilities are operating with 40-odd RUGS codes, compared with some 440 DRG codes under which hospitals typically have operated.

At Pinecrest Rehab Hospital in Delray Beach, FL, CEO Paul Echelard, MS, is rapidly preparing for June 1, the date the PPS system becomes effective at his SNF. June 1 is Pinecrest’s effective date because it coincides with the date the facility’s Medicare cost report goes to HCFA. He has put an RFP out for every ancillary service the hospital has and plans to reduce the number of staff therapists across the board by 20%.

Echelard and other senior management team members also are talking with physicians one-on-one to educate them about changes to expect once the PPS system takes effect. The idea is to tell physicians upfront that SNF staff will have to spend less time with patients in the future due to cost constraints.

As a member of an SNF subcommittee of the American Medical Rehabilitation Providers Association, McCaslin says he and others are urging trade associations to lobby for changes in the system. "One of the concerns we all have in terms of public policy is whether or not we will be able to stay in the SNF business," he says. "Then what happens to the industry if the majority of hospital-based SNFs have to go away or severely limit their scope? Pondering these ramifications is mind-boggling."