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Paul Willging Says...

June 1, 2006
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Medicare Is Worth It, But Be Careful
Medicare is worth it, but be careful If Medicaid is going down the tubes, private pay is drying up, and long-term care insurance is a viable option only for a distant future, what's left? Well, many have seen Medicare as part of the long-term care community's fiscal salvation.

Admittedly, fewer have done so after the Prospective Payment System (PPS) kicked in. But, even with PPS, spending for skilled nursing services provided in Medicare-certified nursing homes represents a growing share of total Medicare expenditures. For a good part of the past decade, Medicare expenditures for skilled nursing facility (SNF) services increased, on average, 25% annually. Over that period, Medicare's average payment per day increased, on average, 12% annually (although the SNF market basket index, which measures yearly changes in the prices of goods and services purchased by nursing homes, rose only an average of 3% per year).

It's not unusual for a nursing home with a skilled-care unit to get 20 to 30% of its annual revenue from Medicare, with the net margins on each day of care approaching $100. Compare that with the situation that prevailed as recently as 15 years ago, when the percentage of total revenues was in single digits, with daily margins correspondingly smaller. Even a former administrator of CMS admitted publicly, on more than one occasion, that Medicare overpaid nursing facilities, and it did so because of the recognized shortfall in Medicaid payments.

So, how does one take a cue from that candid CMS official, Tom Scully, and more effectively use the program to buttress your facility's bottom line? In this column, I'm going to attempt to set a framework for discussion rather than provide the answer. The reason for that is simple: I'm not sure I know the correct answer-or at least not one that might apply equally to all facilities. But I think we can ask ourselves the questions that just might lead to the right answer for your facility. It seems to me that effectively marketing to Medicare eligibles involves three interrelated issues: product design, sales, and management. No rocket science here-but how you go about it just might tax your ingenuity. Let's start with product design itself, which can be subdivided into at least three critical elements:

    1. procedural (i.e., regulatory requirements),
    2. clinical (the capacity expected by professionals), and
    3. perceptual (capacity as perceived by the customer).

The first is the easiest. Requirements laid on providers for Medicare certification can be looked up in the Medicare manual. But even going through the certification process, and all that it entails, is a wasted effort if some of the steps indicated below under sales and management are not addressed first. In short, do all your research before embarking on this project.

I'm not an expert on Medicare's requirements of participation, but I do know you will get nowhere searching for a particular regulatory statement specifying what a Medicare-certified SNF should look like. Rather, CMS will assume that a facility's capacity to provide appropriate care will reflect the needs of the patients in its care. No particular staffing ratios will be mandated. No discussion of capital equipment is involved. There is not one reference to square footage (at least specifically oriented toward Medicare) in the regulation.

But if you're going to admit vent patients, you'd better have some ventilators around. And wound care will require staff trained in its provision. And just as the plan of care needs to reflect the specifics of a patient's assessment, so too will surveyors assess the degree to which the facility has the capacity to fulfill its plan of care for a particular condition. In other words, if you're providing appropriate care, by definition, you have the capacity to do so. If you're not, you probably don't.

That sounds simple, doesn't it? But we should also assume that a bureaucrat's determination as to what is appropriate in terms of physical environment, equipment, and staff is not necessarily the same as that of professionals in the field. So, clinical capacity will be judged by the clinical specialists, as well. That's critical in terms of the prospective customer, and by "customer," I'm talking in this case about physicians, not patients. Although Medicare's requirements of participation don't reference the expertise required of medical directors, referring physicians just might care about that sort of thing, just as they might demand more in the way of equipment or staffing than is assumed acceptable by the feds or state licensing authorities.

In sum, keep in mind in whose eyes your Medicare product design is being perceived and judged. Now, on to marketing. You need to: