S&P: Long-term care hospitals hit hard by Medicare payment changes

hospitals

A change in the way the Medicare program will pay long-term care hospitals will likely cause many of them to go out of business, according to a new report by Standard & Poor's.

The change made by the Centers for Medicare & Medicaid Services prohibits paying for any patients admitted to a long-term care hospital unless they spent at least three days in the hospital's intensive care or coronary care units immediately before transfer; or required at least 96 hours on a ventilator during a non-intensive care stay.

The changes were made in part due to concerns that hospitals were discharging patients to long-term care facilities as a way to optimize bed capacity. Although long-term care facilities often provided better and less expensive care for some patients than acute care facilities, they had also drawn criticism for timing their discharges to maximize payments. An Office of Inspector General report issued in 2014 concluded that long-term care facilities had been overpaid by millions of dollars as a result.

Prior to the changes, CMS would cover up to 25 days of long-term hospital care per year for any patient transferred out of the hospital. The average charges accrued to a long-term care hospital operator were at a base rate of $41,000, according to S&P. Under the rule changes, CMS will reimburse costs for non-eligible patients at a lower per-diem rate, which is estimated to be $10,000 for a stay. The government began to roll out the changes last year, and plan to finalize them by October 2017.

“We expect a material portion of the approximately 435 long-term care facilities nationwide to close over the next few years amid the phase-in of lower reimbursement for non-eligible long-term care patients,” the report said. “Certain smaller, non-rated LTAC operators have already closed their doors in anticipation of the criteria rollout, and some of the rated companies have begun implementing site closures in certain facilities that have weak prospects of remaining profitable under the new patient criteria.”

S&P noted that Kindred Healthcare, Inc. and other leading long-term care hospital operators have been diversifying their portfolios and taking other actions to mitigate the changes in payment.

- read the Standard & Poor's report