Health Policy$ense

Hospitals, Skilled Nursing Facilities, and Bundled Payment

How have hospitals responded?

The Centers for Medicare and Medicaid Services has rolled out a number of bundled payment programs in the hopes that they will help to control costs and improve coordination and quality of care. A focus of these programs is the care delivered by skilled nursing facilities (SNFs) – a post-acute care setting that currently accounts for a significant portion of cost variation and spending in Medicare.

By linking payments for multiple services across an entire episode of care, bundled payment  holds hospitals accountable for the care delivered after discharge, and incentivizes hospitals to reduce costs and readmissions in the SNF setting. However, it is yet unclear how hospitals might accomplish these goals.

In a new paper published in Health Affairs, we conducted semi-structured interviews of administrators and executives in 22 hospitals and health systems across 10 markets to understand how hospitals are thinking about SNF care for lower extremity joint replacement patients. We included only hospitals and health systems that were participating in Medicare’s Comprehensive Care for Joint Replacement (CJR) or Bundled Payment for Care Improvement (BPCI) models.

A majority of hospitals in our study formed networks of preferred SNFs, whereby hospitals traded referral volume for influence over SNF quality and costs.

We found two principal strategies. The first was to reduce SNF referrals in favor of less costly discharges to home, using risk-stratification tools, patient education, home care supports, and linkages with home health agencies. A second approach was to strengthen care coordination and integration with SNFs. A majority of hospitals in our study formed networks of preferred SNFs, whereby hospitals traded referral volume for influence over SNF quality and costs. Across all hospitals, there were also a number of common care coordination strategies, including sharing access to electronic medical records, embedding providers across facilities, hiring dedicated care coordination staff, and creating platforms for data sharing.

What are the takeaways? First, in this limited sample of hospitals, it appears that organizational changes around SNF care are driven by efforts to reduce total costs of care. While bundled payment creates strong financial pressures for hospitals to change post-acute care delivery, payment incentives alone are likely insufficient. We don’t know which – if any – of these organizational strategies will eventually lead to cost-savings and quality improvements. More research is needed to identify those specific mechanisms to help hospitals identify and adopt post-discharge practices that work well.

Second, it is unclear the extent to which these practices have been disseminated across a wider group of hospitals. Recent research from Rachel Werner, in fact, showed persistent increases in the use of institutional post-acute care nationally, while another from Josh Liao suggests weakening hospital-SNF relationships over time. These national estimates highlight the challenges of adopting organizational best practices across different settings. More time may be needed to assess both the intended and spillover effects of various value-based payment programs on hospital practices around post-acute care.

Finally, these findings hold important implications for SNFs, which may start to see sicker, more medically complex patients as hospitals seek to discharge healthier patients home. As hospitals move to refer their discharge referrals more selectively, SNFs may also face increasingly competitive pressures to maintain referral volumes. The effects of these possible changes on patient outcomes remains to be seen.

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About the authors of the Health Affairs paper, Hospitals Using Bundled Payment Report Reducing Skilled Nursing Facility Use And Improving Care Integration:

Jane M. Zhu is a National Clinician Scholar and fellow in the Division of General Internal Medicine at the Perelman School of Medicine and an associate fellow at the Leonard Davis Institute of Health Economics, all at the University of Pennsylvania, in Philadelphia.

Viren Patel is a medical student at the Perelman School of Medicine, University of Pennsylvania.

Judy A. Shea is a professor in the Division of General Internal Medicine at the Perelman School of Medicine, and a senior fellow at the Leonard Davis Institute of Health Economics, University of Pennsylvania.

Mark D. Neuman is an associate professor in the Department of Anesthesia and Critical Care at the Perelman School of Medicine and a senior fellow at the Leonard Davis Institute of Health Economics, at the University of Pennsylvania.

Rachel M. Werner is a professor of medicine in the Division of General Internal Medicine at the Perelman School of Medicine and a professor of health care management at the Wharton School of Business, both at the University of Pennsylvania. She is a senior fellow at the Leonard Davis Institute of Health Economics, and core faculty at the Center for Health Equity Research and Promotion, Corporal Michael J. Crescenz Veterans Affairs Medical Center, in Philadelphia.