The rise of “value-based purchasing” in the nursing home industry
March 24, 2021
Provider-Owned ISNPs present an opportunity to drive the clinical model and realize the economic benefits of the resulting saving.
Wasteful spending in health care is a well-established concept, with estimates that $0.25 of every dollar is wasteful.So, to hear leadership at CMS describe something as “the lowest hanging fruit in health care” made me take notice.
The culprit? Unnecessary hospitalizations of long-term care nursing home residents.
Prior to diving into the nuances of ownership and operation of a Provider-Owned ISNP, it is necessary to appreciate the underlying reason for the emergence of the model. That reason is a history of unnecessary long-term care resident hospitalizations.
The rise of “value-based purchasing” in the nursing home industry started with the short hospital stay. It emerged with the Affordable Care Acts bundled payment mandate, which led to intense focus on length of skilled stays and rehospitalization rates.
Nursing homes responded by hiring nurse practitioners (NPs) to reduce re-hospitalization rates. Yet the NPs were rarely active participants in the clinical programing or economic incentives. Instead, they operated on a fee-for-service treadmill and were preempted by those managing the bundles – physician groups, acute care providers, Medicare Advantage plans and vendors.
As attention has shifted to long-term care residents, the majority of nursing home census, nursing home owners are heeding the lessons learned from the bundled payment experience and taking ownership of the value-based opportunity.
The shift of focus to long-term care residents is highlighted by quality reporting measures now being included by CMS for Number of hospitalizations per 1,000 long-stay resident days.
The good news: Provider-Owned ISNPs present an opportunity to drive the clinical model, reduce excessive, unnecessary hospitalizations, and realize the economic benefits of the resulting savings. As we discuss the economics of the Provider-Owned ISNP – the main variable of success is the hospitalization rate of the long-term care resident members. As illustrated by a quick analysis assuming an average hospitalization cost of $11,000 and a monthly premium of $2,000:
Monthly member premium: $2,000
- Unmanaged hospitalization expense: 5.2% x $11,000 = $572 or 28.6% of premium
- Managed hospitalization expense: 3.3% x $11,000 = $363 or 18.2% of premium
The above example represents a savings of $209 per member per month. For a 1,000 member ISNP over 12 months, this computes to $2.5 million of shared savings and shows the potential for significant impact with the ISNP model of care – a model that provides comprehensive bedside care and results in reductions in unnecessary hospitalizations.
The model also reduces the qualitative and quantitative negative outcomes from the additional hospitalizations, including resident and family disruption, resident discharge to a different facility, lost room and board to the facility and expenses ancillary to the visit like transportation.
Bottom line: the ISNP model is the best clinical care for someone who resides in a long-term care facility. And the resulting savings stay in the facility that delivered the care and brought the clinical value.
We welcome your feedback, so comment below or reach out directly to HWatson@AmHealthPlans.com