Paul Willging Says…


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:

  • know the demographics,
  • know the competition,
  • know the customer,
  • know what will turn the customer on, and
  • know how to do it.

I’m going to assume your markets have sufficient numbers of seniors eligible for Medicare to warrant the expense of Medicare certification. What I won’t assume, however, is due diligence as to point number two, knowing the competition. How much competition is already out there? Long-term care has a tendency to shoot itself in the foot on that score. Judging by performance over the past several years, the signature movie for the industry would appear to have been Field of Dreams: “Build it and they will come.” We did. They didn’t.

Just look at the example of assisted living. Entrepreneurs saw the incredible success of pioneers in the field and assumed that any facility, even moderately attractive and calling itself assisted living, would have to turn customers away. And the result? An industry whose growth might put Starbucks to shame, and yet whose occupancy levels spelled bankruptcy for many.

So, do your research. Who else out there is providing the same service? How many are hospital-based SNFs? How loyal are the physicians in the community to those hospitals? What makes you think you can divert them to your facility?

What about point number three, knowing your customer? Look again to assisted living for how not to do it. One of the key mistakes made by assisted living operators was to assume that seniors made the decision as to admission, thus the industry’s early and disproportionate growth where the “customer” was-the American Sun Belt. Many operators discovered (too late, as it turns out) that it was the seniors’ children making those decisions, not the seniors themselves.

In Medicare transitional settings, however, I doubt that even the children have much to do with the decision. I’m going to assume, until persuaded otherwise, that it’s the physician who is the ultimate arbiter as to the site of service, probably in tandem with the hospital’s discharge planner.

Successful nursing home administrators know how to deal with hospital discharge planners. Fewer know how to deal with physicians-perhaps because they see so few of them in their facilities. The good news is that physicians can be approached. The bad news is they don’t have the time to be approached. So, sometimes you have to work though surrogates-your own medical director, physicians attending in your facility, any contacts you might have with the members of the hospital’s professional staff, and/or friends in the local medical society.

In any event, you need to talk with the physicians. You need to get their attention. You need to sell them on your product. Wouldn’t it be great if you could conduct some focus groups with physicians who are likely candidates for referrals to your facility? Spring for dinner (if the Stark “antikickback” law will let you, of course). Engage them in establishing your program. Make them feel like partners. Elicit a psychological investment from them in your facility. If they think their advice was instrumental in establishing your (their) program, they are less likely to refer elsewhere.

This gets back to product design. Bring the physicians into your confidence as early as the decision-making process will allow regarding capacity. It will certainly pay off when you move into marketing.

So, now you’re done, right? You’ve got the product. Your facility is certified. Physicians and discharge planners think you’re the greatest thing since Skippy Chunk-style peanut butter, and they’re flocking to your facility. I guess that’s success-at least for the short run. But if you don’t manage your new high-acuity patient well, your success will be short-lived.

Too many operators forget that the Medicare patient is just that-a patient. Medicare pays so much more for its beneficiaries largely because they do, indeed, present more complex and challenging conditions than the typical long-term care resident. Consequently, simply throwing the MDS coordinator into the fray won’t hack it. Let’s face it-the typical assessment coordinator does just what the job title implies: She attempts to coordinate the assessment process. Her primary responsibility is to ensure that assessments are accurate and timely, in itself no mean feat.

Certainly, the assessment process has never lived up to its full potential. Far from a coordinated, team-based undertaking designed to comprehensively and holistically ascertain the condition and needs of the nursing home resident, it has become in too many facilities a disjointed and fractured compilation of uncoordinated evaluations by healthcare providers, each considering patient needs from his or her particular professional perspective. We have created our own silos in long-term care.

But that’s not the fault of the assessment coordinator. Most are overworked and underpaid for the thankless task they face day in and day out. Between “herding the cats” that fill in the daily assessment protocols and functioning, at the same time, as the facility’s resident PPS guru, they certainly don’t have the time (or the responsibility) to also manage the resulting plan of care. Yet, as I’ve indicated, failure to manage that care will spell disaster for the newly certified Medicare facility.

The most successful Medicare operators have taken that lesson to heart and established new positions more akin to care managers. Their responsibility is to ensure that not just the assessment is coordinated, but the more important document clinically-the plan of care-is also coordinated and implemented. Absent that, the other critical prerequisites mentioned earlier, product design and marketing, will come to naught. Government will consider your capacity to provide appropriate care to be lacking and the customers (physicians and discharge planners) will depart in the same droves in which they arrived.

And guess what? For your facility, it’s back to Medicaid, private-pay and long-term care insurance, and holding on for dear life.

To send your comments to Dr. Willging and the editors, e-mail
A Personal Note
This essay marks the end of my third year writing a monthly column for Nursing Homes/Long Term Care Management. It’s been quite a stint, and a most enjoyable one. I was never quite sure I had it in me to produce, as I have, 33 columns (skipping each year’s July Buyers Guide). But the long-term care profession has made the journey an easy one. We are such a changing and dynamic industry that the topics are just waiting there for the picking.

But it has been the reactions of my readers that have made the monthly grind really worth the effort. I think my greatest pleasure has come, not from the writing, but from responding to reader reactions. I have written for many other magazines, both academic and trade-related, but the readers of this publication have been the most enthusiastic in their response to my musings. A few have agreed with me. Others have challenged what I had to say. Responding to both has been a real pleasure. I look forward to future such interaction.

– Paul R. Willging, PhD

Paul R. Willging, PhD, was involved in long-term care policy development at the highest levels for more than 20 years. For 16 years as president/CEO of the American Health Care Association, Dr. Willging went on to cofound the successful Johns Hopkins Seniors Housing and Care postgraduate program (cosponsored by the National Investment Center for the Seniors Housing & Care Industries), and later served as president/CEO of the Assisted Living Federation of America. He is currently Core Faculty and Associate Director for the Johns Hopkins Center on Aging and Health. He has enjoyed an equally long-lived reputation for offering outspoken, often provocative views on long-term care.

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