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Which PDPM Therapy Pricing Method is Best?

Since the RCS-1 Proposed Rule was released in Spring 2017, through the PDPM Final Rule and up to today, we’ve spent hundreds of hours thinking and pressure testing different ideas. We’ve had ongoing conversations with customers, colleagues, and consultants about PDPM therapy pricing. Our goal was simple: Develop a pricing approach which equally addresses and ensures the success of our patients, customers, and employees under PDPM. 

ALIGN INCENTIVES & UNDERSTAND RISK/REWARD DYNAMICS
For SNFs with a currently outsourced therapy contract or those considering moving from in-house to outsourced, these factors require careful consideration. Selection of pricing methodology should be informed by a detailed understanding of how the SNF’s current population crosswalks to PDPM groups , the projected PDPM financial impact to the SNF’s Part A revenue, and the areas of risk and opportunity related to the transition.

It’s imperative that SNFs consider, and understand, how each proposed pricing methodology aligns with supporting the SNF in a successful PDPM transition. After all, therapy is a key clinical service whose performance impacts a SNF’s ability to grow and sustain market-share by satisfying patients, families, and referral sources. Moreover, strong therapy programs support value-based payment incentives like QRP, help prevent re-hospitalizations, and support the SNF interdisciplinary team’s case management approach leading to positive and predictable financial results. 

Given the new and/or heightened importance of PDPM technical core competencies SNFs must master to succeed in PDPM, it is important for therapy pricing to align with and directly support these areas.

HealthPRO® Heritage’s PDPM Expert Panel offers up five potential PDPM therapy pricing methods, our views of each, and ultimately our conclusion. Behind the recommendation is the following set of objectives we believe both parties (SNF and therapy provider) should strive to achieve to deliver the best PDPM outcomes.

PRICING METHOD PARTNERING OBJECTIVES
HealthPRO® Heritage strongly believes the best PDPM pricing method will achieve the following:

  • Ensure patient outcomes are attained through evidence-based, well-constructed clinical pathways;
  • Provide a compliance foundation on which to build win-win partnerships;
  • Ensure clinically based financial opportunity and viability for the SNF and therapy provider;
  • Directly support day-to-day focus on critical care management elements that also drive revenue capture (ICD10, Section GG, Cognitive, etc.) to ensure the most appropriate and accurate reimbursement is achieved;
  • Ensure a manageable billing and invoicing approach; and
  • Minimize any potential inadvertent misalignment or risk created to contractual incentives.

#1 RISK SHARE PER DIEM
The therapy provider bills the SNF a per diem rate per PDPM therapy group

  • Similar to the predominant RUGS Per Diem Method (historically constructed on price per minute)
  • SNF guaranteed profit for each PDPM rehab group (only 16 PT/OT and 12 SLP PDPM therapy groups)
  • Therapy partner paid a capitated per diem rate per PDPM therapy group
  • Rate may be easily constructed as a % of the rehab portion of the PDPM rate by PDPM therapy group
  • Parties share in upside/downside risks of category alignment, diagnosis coding, MDS Section GG coding (ADL), cognitive scoring, and identifying patient changes in condition
  • Aligns incentives to balance outcomes, utilization, costs, compliance, and revenue capture
  • Therapy partner absorbs share of PT/OT variable per diem adjustment
  • Therapy partner absorbs share of sequestration
  • Therapy partner must deliver adequate volume of minutes (PDPM clinical pathways) to deliver outcomes and ensure compliance under a “managed care like” rate capitation approach
  • SNF insulated from risks associated with referral/patient mix and crosswalk changes

 #2 TIERED CAPITATED PER DIEM RATE
The therapy provider charges a fixed per diem rate per “tier”. The per diem rates will vary and depend on which billing tier the patient falls under.

  • This method assigns TBD minute volume estimates and pricing to segments of the SNF’s population attempting to align patient mix with resource needs of medically complex patients, ADL ranges or other factors agreed upon by the SNF and therapy provider; While there may be universal agreement on how these tiers should be structured in the years ahead, the process to set initial tiers may prove challenging
  • Depending on design and patient mix changes, SNF may not be guaranteed a profit for each tier
  • SNF or rehab partner may carry disproportionate financial risk as PDPM mix changes
  • No industry standard on how tiers should be established
  • Wide variation likely in both reimbursement and therapy required within defined tiers
  • Parties’ incentives misaligned to capture optimal revenue upside (coding, Section GG, and cognitive) and case manage patients
  • SNF absorbs variable per diem adjustment
  • Therapy partner must deliver adequate volume of minutes (PDPM clinical pathways) to deliver outcomes and ensure compliance under a “managed care like” rate capitation approach
  • CMS has done the “tier” work for providers by limiting to 16 PT/OT and 12 SLP PDPM therapy groups – why recreate the wheel?

#3 ONE FLAT CAPITATED PER DIEM RATE
The therapy provider charges a per diem rate per Medicare Part A resident, per day. This single per diem rate does not vary with changes in acuity or patient mix.

  • Simple approach – one tier and one related pricing rate intended to cover all patients in all situations
  • Depending on design and patient mix changes, SNF may not be guaranteed a profit for each PDPM Group
  • Both SNF and rehab partner carry significant and potentially disproportionate financial risk should patient acuity/mix change or experience be different than initial pricing
  • No industry experience with PDPM makes this method highly susceptible to behavior misalignment and financial exposure
  • Parties’ incentives misaligned to capture potential revenue driver accuracy (coding, Section GG, and cognitive) and case manage patients
  • Therapy partner must deliver adequate volume of minutes (PDPM clinical pathways) to deliver outcomes and ensure compliance under a “managed care like” rate capitation approach

#4 TIME IN FACILITY
The therapy provider charges an hourly rate for all therapist labor hours spent in the facility.

  • Simple model where pricing is based on therapists’ labor hours/bill rates
  • Therapy provider not contractually incentivized to drive better outcomes or improve operational efficiencies, putting the SNF at potential risk for decline in performance measures and/or increase in costs
  • Parties misaligned on the need for effectively managing key care management items that are impactful for SNF revenue capture (ICD-10 coding, Section GG ADL scoring, and cognitive scoring)
  • Therapy partner gets paid for hours worked, no risk or case management incentive

#5 PART A COST PER THERAPY MINUTE
The therapy provider charges a rate per minute of therapy delivered for every Medicare Part A patient.

  • Note: this method is not built to a per diem structure, rather payment for each minute delivered
  • Simple but unpredictable pricing model
  • Parties’ alignment financially at odds – facility better served limiting minutes (cost) while rehab partner benefits from providing more minutes
  • Parties’ incentives misaligned on revenue capture – coding, Section GG, cognitive, etc.
  • Therapy partner gets paid for care delivered, no risk or case management incentive
  • Complexity related to which party sets clinical pathways, ensures patient outcomes and compliance, and carries associated risks

#Ready4PDPM 

AND THE WINNER IS….
As you’ve read above, each pricing method carries a long list of pros and cons. However, we believe strongly the Risk Share Per Diem (per PDPM therapy group; #1 above) method aligns all parties’ incentives and interests best while simultaneously embedding accountability to those same parties to deliver on patient outcomes, regulatory compliance, and financial viability.

HAVE MORE QUESTIONS? 
Our experts would be happy to discuss PDPM pricing methods with you to explore questions like these: 

  • How important is it to our clients that some models represent opportunities to align incentives better than others?
  • Which approach is best for patient care?
  • What will partnerships between SNFs and therapy providers look like in the future?
  • How do I ensure my SNF is fiscally successful under PDPM?
  • This seems complicated, where do I start?
  • How do I start a "Crosswalk Analysis" to understand how current performance maps to PDPM prior to agreeing to contracted pricing methods (may see wide variations in how patients map to PDPM groups/related reimbursement/costs)? Learn more. 

PREPARE. EXECUTE. SUCCEED.
Need support getting your head in the game? HealthPRO® Heritage is also a trusted, consultative partner leading the industry in PDPM readiness. Our deliverables: strategy, education, and execution on key clinical competencies that are crucial to PDPM success.

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Tags: PDPM, Patient-Driven Payment Model, CMS Update 2018, Payment Reform