The high mortality associated with COVID-19 cases in nursing homes is staggering. As of September 1, COVID-19-related deaths in long-term care (LTC) facilities comprise more than half of documented deaths from the disease in 22 states, even though fewer than 0.5% of the U.S. population resides in LTC facilities.
Nursing homes serve two broad constituencies: short-term patients who need skilled nursing care on a post-acute basis, and long-term patients who need help with activities of daily living in addition to skilled nursing care. The first group of patients is generally funded by Medicare and insurance companies, while the second group of patients is generally funded by Medicaid alone. Over 60% of nursing home residents are covered through Medicaid.
The COVID-19 pandemic will have lasting effects on nursing homes, beyond the COVID-19 case counts and death tolls. As nursing homes serve some of our most vulnerable populations, it is imperative that we consider the potential impact of major changes to these facilities to the patients who depend on them for post-acute and long-term care.
Below, we will consider the potential impact on Medicare and Medicaid beneficiaries of major trends impacting the nursing home industry. Specifically, we will discuss:
- Alternative payment models
- Situs of care preference
- Mergers and acquisitions
Alternative Payment Models
The pandemic is accelerating hospitals’ shift away from traditional fee-for-service (FFS) contracts, with major downstream impacts on nursing home revenue sources.
Hospitals’ shift away from FFS and toward alternative payment models (APMs) was already in effect for many years prior to the pandemic. Per the Health Care Payment Learning and Action Network, 62% of health care payments in the US were paid under a traditional FFS model in 2015, while in 2018 that proportion was only 39%. This transition is evident for all payers and is the result of a combination of public and private initiatives.
Momentum was already clearly in favor of APMs before COVID-19 hit. But then the pandemic exposed huge fault lines in the FFS model. FFS payments are a function of the volume of services provided, so when procedures were canceled in droves in the spring, hospitals’ revenue dried up. On top of that, the COVID-19-driven recession has caused millions to lose their employer-based health insurance coverage. This loss is driving a shift in payer mix from commercial to relatively less lucrative payers, like Medicaid. This combination of unpredictable FFS revenue streams and unfavorable payer mix, among other factors, is driving industry stakeholders to call for an acceleration of the movement toward APMs.
There is evidence that some APMs may incentivize lower utilization of nursing homes by Medicare beneficiaries. For example, the largest driver of savings in a study of Medicare Shared Savings Program Managed Care Organizations was a reduction in spending in post-acute care facilities. This evidence combined with similar findings across a variety of programs led one paper to deem nursing homes “the piggy bank for savings” in APMs.
Given the increased motivation to shift away from FFS payment structures due to the pandemic, and the large financial incentive for hospitals under APMs to reduce utilization of institutional post-acute care, Medicare beneficiaries may soon find themselves more often discharged straight home following a hospital stay, rather than discharged to recuperate in a nursing home.
CMS has encouraged a shift from in-person care to virtual care for Medicare beneficiaries during the pandemic using a plethora of incentives, including the following:
- Allowing provider payment irrespective of the originating site for the telemedicine visit (previously, the beneficiary would have to be in a designated rural area before Medicare would consider paying for a telemedicine service)
- Paying for telemedicine visits at the same rate as in-person visits
- Waiving the requirement for the beneficiary to receive the telemedicine service in a medical facility, so that they could instead conduct the visit in their home
- Notifying providers that the Office for Civil Rights was exercising enforcement discretion such that they would not be fined for HIPAA violations if they conducted telemedicine visits through non-HIPAA compliant platforms like FaceTime or Skype
Given these incentives, telemedicine use by Medicare beneficiaries has increased over 100-fold on a weekly basis, compared to pre-pandemic levels. And CMS is now proposing to make some of the telemedicine payment changes permanent. If some of the permanent changes will allow providers to be paid to monitor and treat patients in their home following a hospital discharge, providers may be encouraged to discharge patients to their home rather than to a post-acute care facility. This could have a dramatic impact on nursing homes. A decline in Medicare patients could be detrimental for facilities that rely on Medicare revenue to subsidize the care delivered to Medicaid patients. As such, a decrease in the Medicare census could impact facility finances, which could then have a downstream impact on the quality of care provided to the facility’s Medicaid patients.
Situs of Care Preference
Long-term care admissions fell dramatically beginning in March, consistent with utilization changes across the healthcare landscape. One hypothesis for the drop in new LTC admissions is that families are trying to support aging in place for their loved ones as much as possible because they are fearful to place them in a nursing home. And the increased ability of many employees to work from home (and, conversely, high unemployment) has enabled families to care for their aging relatives at home more easily than before the pandemic. This phenomenon affects patients requiring long-term care, which is primarily funded by Medicaid.
But even though there is clearly a demand for Home- and Community-Based Services (HCBS), the nature of long-term care will likely prohibit a 100% shift from institutional to home-based care. Long-term care facility admissions are generally triggered by an inability to perform some Activities of Daily Living (ADLs), such as continence, feeding, and bathing. And while assistance with ADLs may not require skilled care, it requires a lot of work from family members who often have other responsibilities to tend to as well. As such, the ability of loved ones to care for aging relatives sometimes cannot keep up with the level of care required, and so institutional care needs to be put back on the table.
Technological advances and the firm desire of some families to avoid a nursing home admission may result in more use of HBCS by high-acuity patients, but the resources required to accommodate a high-acuity patient in a home setting may not be available to Medicaid beneficiaries and their families. Unless more resources are specifically directed to Medicaid HCBS initiatives, there may not be a lasting shift from institutional to HBCS among Medicaid LTC patients, despite the huge demand for home-based care.
As discussed above, there have been significant declines in patient census in nursing homes this year. This is associated with declining revenue, which could portend a nursing home closure or an acquisition.
Even before the pandemic, M&A transactions involving nursing homes were common.,  The interest in nursing homes is in part due to the expected need for them in the future. Per data collected by HHS, 70% of retirement-age adults will need LTC at some point, and almost half of all retirement-age adults will receive some paid care, including home health, assisted living, or nursing home services. As discussed above, Medicaid is the largest payer of these services; Medicare generally does not pay for long-term care.
So, how will consolidation and M&A activity affect long-term nursing home residents? The answer might depend on who the buyer is. With respect to COVID-19, there is evidence from nursing homes in New Jersey that private equity ownership was associated with higher COVID-19 infection and fatality rates. Similarly, a report on skilled nursing facilities in California found that for-profit ownership was associated with higher case and fatality counts than non-profit or government ownership. Outside of the pandemic, studies show that private equity ownership of nursing homes is associated with declines in patient health. As nursing homes evolve to serve patients in a post-COVID-19 world, more research should be done on the impact of M&A activity and ownership status to the facilities’ patients and long-term residents.
Payment reform, increased use of telemedicine, preference for home-based care, and consolidation are all issues affecting Medicare and Medicaid nursing home patients. These trends were all in place before the pandemic but have since been accelerated.
We know that the need for post-acute and long-term care will continue to grow as the population ages. However, for both Medicare and Medicaid beneficiaries, the role of nursing homes in serving those needs may be beginning to shrink.
 State Data and Policy Actions to Address Coronavirus. (2020). Kaiser Family Foundation. Retrieved from https://www.kff.org/coronavirus-covid-19/issue-brief/state-data-and-policy-actions-to-address-coronavirus/. Accessed September 2, 2020.
 Including skilled nursing facilities, for purposes of this discussion
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 From statistics compiled by the Health Care Payment Learning & Action Network. The 2015 statistics were retrieved from https://hcp-lan.org/workproducts/apm-infographic-2015.pdf, while the 2018 statistics were retrieved from https://hcp-lan.org/workproducts/apm-infographic-2019.pdf.
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 Blumenthal, D.B. et al. (7/22/2020). COVID-19 – Implications for the Health Care System. The New England Journal of Medicine. DOI: 10.1056/NEJMsb2021088.
 Specifically, facilities that provide post-acute care
 McWilliams, J.M. et al. (6/16/2016). Early Performance of Accountable Care Organizations in Medicare. The New England Journal of Medicine. DOI: 10.1056/NEJMsa1600142.
 Barnett, M.L. et al. (7/25/2019). Postacute Care — The Piggy Bank for Savings in Alternative Payment Models?. The New England Journal of Medicine. DOI: 10.1056/NEJMp1901896.
 For the duration of the federal Public Health Emergency
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