Department of Health and Human Services Plans Shift to Value-Based Payments for Nursing Homes

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Earlier this year, the U.S. Department of Health and Human Services (HHS) announced a goal of connecting 85 percent of all traditional Medicare payments to quality measurements by 2016 and 90 percent of such payments by 2018. In addition, HHS indicated an objective of connecting 30 percent of Medicare payments to value or quality based alternative payment models by 2016 and 50 percent by 2018. As a point of reference, approximately 20 percent of payments are currently made through alternative payment models. This represents the first time that HHS has publicized a timeline for the often-discussed transition from quantity based reimbursement to one that rewards providers for quality and value measurements.

While this transition has been an industry topic for a number of years now, HHS’ announcement increases the urgency of nursing homes’ efforts to prepare for life in a new reimbursement environment. While every nursing home is at a different stage in their preparation for the transition to quality based care payment, below are some key considerations each nursing home should consider as they assess their organizations and potential changes that may be needed:

  1. Track readmissions information: While the concept of quality care covers many facets, the metric that Medicare seems most focused on at this point is readmissions. Medicare believes reducing hospital readmissions will lead to a reduction in overall system costs. As such, it is highly likely that Medicare (either directly or indirectly through incentives/disincentives it provides to partner hospitals) will reduce reimbursement to nursing homes that have higher readmission rates. It is imperative, therefore, that each nursing home analyze its readmission trends―how does the home compare to local competitors and industry peers? What are internal factors that are driving the facility’s current readmission rates?
  2. Understand the 5-star quality guidelines: With the recent changes in the CMS 5-star quality guidelines, many facilities have decreased a step from their rankings under the previous guidelines (e.g. 5 stars to 4 stars). While there has been no announcement of explicitly tying Medicare reimbursement rates to a facility’s rating, it is logical to expect that HHS will consider the 5-star rating as part of a nursing home’s quality status. While not the focus of this article, it is important for management to understand the changes in the quality guidelines and how they will impact their facility in 2015 and going forward.
  3. Assess your organization’s contracting expertise: With the planned shift to quality, nursing homes may be required to enter into contracts with Medicare or partner hospitals as part of an accountable care organization. In order to enter into contracts that are not detrimental to the nursing home, each facility needs to determine whether it has the expertise in-house to analyze cost data by patient/service type, patient acuity trends, and the strength and consistency of patient quality processes. In addition, a nursing home may need expertise in the area of contract negotiations. If this expertise is not currently in-house, each nursing home needs to determine whether they will hire appropriate expertise or engage related outside experts.
  4. Establish an internal timeline: With 2016 only a year away, nursing homes should establish an internal plan and timeline for tasks that need to be completed. As mentioned earlier, each organization is currently at a different point in the process. It is important for management to understand what changes may be necessary, human and financial resources that will be required and how long certain tasks or implementations may take.

We expect that HHS will provide additional information related to this announcement as 2015 continues and 2016 begins.

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