The Future of Post Acute And Long-Term Care

1. The Future of Post Acute And Long-Term Care Jonathan M. Evans MD MPH CMD FACP

2. Predicting the Future: • When you think about the future of health care in general, and PALTCM in particular, what do you see? • Why? • How do you feel about it? • As a health care professional? • As a future patient?

3. Population aging: More older, sicker people. Greater need for care • More hospitals? • More nursing homes? • More of us? (Doctors, Nurses, NPs, PAs, Therapists, CNAs, etc) • Why/why not?

4. Population Aging: Proportionally fewer younger people to care for, pay for needs of older population • Will you get paid more? Why/why not? • Law of supply and demand: how does that work in health care? • Will you be more respected? Why/why not? • Will care get better? Why/why not?

5. America, like most of the world, is aging • There are more humans alive today in the world aged 65 and older than ever lived to that age in all of history combined! • More older Americans in absolute numbers, and the proportion of older people as % of population also increasing • Subsequent generation (gen x) is smaller than baby boomers • More people will need our care. • There are not enough of us to provide it • (Why is there a shortage of us?)

6. Population aging affects all of society • Revenue from taxation • Priorities in government, personal spending • Affects economy for all • Many benefits to (younger) society from having large cohort of well seniors • Childcare, volunteerism, philanthropy, historical memory

7. Life Expectancy/ Population Health/ Health Care Quality • Life expectancy among Americans is falling • Life expectancy lags behind the entire industrialized world and many other countries (43rd) in the world now • Expected to drop further to 67th in the world in next 20 years • America ranks number one worldwide in cost of healthcare

8. Positive things for you • More people will value expertise in understanding needs, concerns of older persons • Values of older society may be more aligned with your values • Baby boom generation may exert power in ways that benefit you professionally and/or personally

9. Goals • Discuss past, current issues, factors, and trends affecting PALTC • Develop/discuss a framework for how you can predict the future, in order to have a greater sense of power and control over your life. Greater about to succeed in caring for others

10. Predicting the Future of PALTC/PALTCM • Conceptually, how (on what basis) does one go about predicting the future? • Identify forces that influence the behavior of individuals, organizations, governments, etc to change • Collect Facts (demographics, health statistics, economics about current situation) • Study past events, current trends re: rates of illness, health care utilization, impact of regulation/laws, payment schemes on health care delivery • Make assumptions, including extrapolating current trends to future • Who actually decides what happens? Why does that matter?

11. What assumptions do you make in order to predict future?(are those assumptions valid?) • People behave in predictable ways (?) • Understanding what drives behavior predicts the future (?) • People act in their own self interest (?) • They behave rationally (?) • Demography is destiny (?) • People have choices (?)

12. Assumptions You Make About Future, Continued • Societal needs will dictate how resources are allocated to meet those needs? (Think roads, bridges, infrastructure) • That businesses (ie. health care (hospitals, SNfs) will behave in certain ways that are predictable based upon certain rational behaviors according to business values (i.e revenue/profit maximization above all else? • What does one need in order to make rational decisions?) • Certain societal/moral values will guide planning/decision making? • That there will be planning? (planning for what?)

13. Predicting the Future: My Assumptions • Follow the money. Major changes in health care delivery and outcomes over last 3 decades have been driven more by a desire on the part of payors to reduce spending (and on the part of providers to make more money/reduce costs) than anything else • Patients, individual practitioners have had much less impact • Promise of better quality for more money never materialized and is no longer believed by payors • Major dislocation of patients to lower cost care sites without commensurate shift in resources • Quality of care keeps going down • Major changes, decisions not based on public health needs

14. My Assumptions, Continued • There is not/will not be substantially more money to pay for care needs of aging population • Zero sum game • More money isn’t necessary overall • The biggest challenges we can’t buy our way out of • Politics/powerful interests (including within medicine), are impediments to achieving public health goals, care goals, and economic goals

15. Predicting The Future: Continued • Past is prologue: what has happened thus far and why? • Financial motives of powerful interests will continue to dominate even at the expense of public health, health care (goal is avoid/reduce payment/expense) • Desire to reduce overall costs to payors, will decrease the role, responsibility (but not power) of hospitals, ostensibly (but not actually) to save money • Governments’ role/effect of politics/power different from governing • Health care is reactive, inability to innovate is cultural, educational: ignorance of health care delivery/systems, turnover, inability to provide basic care

16. Predicting the Future: Continued • fragmented care/ responsibilty expensive overall, increased waste, errors • also based on inability to set prices • Contributes to culture of scarcity: focus on limiting expense/effort • Health care workplace culture unhealthy, adds to cost, inefficiency, poor quality (Burnout, anyone?) unlikely to improve soon • Self interests of PALTC industry/PALTCM providers/Patients/Payors often in conflict • There will be no increase in money/payment per patient/ medicare beneficiary beyond small adjustments (2.4% for SNF care in 2019)

17. Predicting the future: Continued • Workforce issues (labor) • Business (real estate/finance) issues drive PALTC more than other health care sectors • Government (state and federal) issues affecting PALTC • Revenue (tax) vs obligations (Medicaid/Medicare) affected by demography, politics • Annual or biennial allocation of funds for healthcare (Medicare/Medicaid) vs. pay as you go spending

18. Past is Prologue

19. Key moments/forces in history of PALTC • Medicaid late 1960s- ushered in real estate boom/ LTC industry/ community NHs • By 1980s: Limits,on NH construction in almost all States, Medicaid payment less lucrative • Focus on private pay/ higher rents, CCRCs beginning • 1987-1992 OBRA 87/ NHRA • 1990- present: Prospective payment for hospitals resulting in reduced hospital length of stay, changing Ethos of hospitals, health care • 1990’s -now: Post-acute care (Medicare Part A reimbursement) chasing higher rents • 1990’s beginning of Assisted Living Industry • Mid 2000s: Medicare alternative plans (Managed Medicare) • Mid 2000s Medicare Payment based on RUG • Mid 2010s: Decreasing skilled LOS in SNF, declining occupancy rates • 2018: Proposed change in Medicare reimbursement (‘pay for performance’, diagnosis based payment) for 2019

20. The (real estate) business (financing) of PALTC • Real estate business model • Buildings owned by one legal entity (Real estate (LLC) separate from the company providing the care (operating LLC) • Building is least to an operating company: rent paid based on number of beds/square footage as well as percentage of gross revenue (Retail/shopping mall model) • Value of the real estate asset is a multiplier of rent/revenue and/or census (give hospice example)

21. Real Estate LLC • Often owned by institutional investor(s)/ REIT • Share holders receive dividends/distributions and or value increased over 3-5 years then sold • Value of the real estate enterprise (just like your home equity) is “trapped capital” • Trapped capital is “released’ by borrowing against it (loan). • Loan proceeds (distributions) are tax free (not income) • This borrowing to buy or refinance is referred to as “leverage” • Economic goals: maximizing assets and releasing them as cash, minimizing tax (by minimizing taxable income)

22. Real Estate Culture • Maximize revenue per square foot (rent) • Pay commission/finder’s fee for new tenants • Debt driven industry: commercial loans vs. hospital model: Municipal bonds/endowment • Short-term, long-term care are different businesses in same physical place (often same bed) goals/interests/customers may conflict • Many facilities are in the wrong place to e successful SNFs

23. SNF Operating Company • Lease arrangement with owner of real estate • Borrow money to pay rent, overhead (labor) • Unlike a home loan, no collateral in the form of real estate in the event borrower unable to pay • Lender agrees to extend credit based upon the historical and current revenue/census • Should revenue drop below a certain predetermined level, credit worthiness drops and interest rate automatically increased (or worse)

24. Decreasing Revenue/ Census in SNF/NF • Nationwide, occupancy rates have decreased from 88% to 80% over 3 years (why?) • Approx 300 NH closures per year over 3 years • From roughly 16,000 down to 15,000 facilities nationwide • Number of people receiving PALTC increasing • Length of stay decreased (27 days for Medicare) • Complexity of patients increasing • Core business (elective joint replacement) has gone away (why?) • Borrowing costs rising, cost to provide care increasing • Good outcomes take time. Shorter LOS= worse outcomes

25. How Does Your Understanding of This Business Model Affect Your Thinking About the Future of PALTC?

26. Form Follows Finance • Financial concerns affect decision making including admissions, discharges • Budgets often top down needs/wishes rather than best estimate of reality • Operators may not identify cost of care as well as you can • What will happen if census keeps dropping nationwide? (AZ example)

27. Proposed Pay for SNF Performance • Payment based on outcomes not minutes of therapies provided • Payment based on medical diagnoses • Penalties for 30 day discharge all cause • What changes do you expect as a result? • Unintended consequences? • What/who determines outcomes?

28. Labor Issues • Shortage of nurses, shortage of CNAs, Physicians • Causes/potential solutions, consequences • Changing PALTCM work force/consolidation • Hospital based practices • ‘strategic alliances’ • Commoditization of PALTCM • Often irrelevant medical director • Fee used as retainer/subsidy to get practioners to show up • Mismatch between skill set of health care workers and care needs across all care settings

29. Future of PALTCM: Predictions • Many challenges now and in near future • Nation is torn re: role of government, immigration, etc. that affects PALTC • An extended period of turmoil is likely • Need for excellent, compassionate care has never been greater • AMDA/ PALTCM can promote professional standards, advocate for quality care or risk being run over