May 5, 2019, Alex Spanko, Skilled Nursing News - As both government and private payers increasingly move toward value-based reimbursements, skilled nursing providers in particular have struggled to keep up — and shift decades-old operational patterns to suit the new reality. For OnPointe CEO Eric Tanner, the only way forward is by running headlong into risk, primarily by showing payers and hospitals how his company’s skilled nursing facilities can solve their problems.
Tanner recently sat down with Skilled Nursing News for the most recent episode of our podcast series, “Rethink.” Our conversation ranged from a frank discussion of landlord MedEquities Realty Trust’s decision to re-tenant 10 OnPointe buildings last year to an inside look into how Tanner and his team form vital partnerships in competitive markets across its footprint in Texas and New Mexico.
Walk me through the re-tenanting process with MedEquities.
The original lease was signed in 2015. If you remember, 2015 was somewhat the height of the market as it relates to skilled nursing valuations. It was signed, and for about a year and a half, it was actually going pretty well. But what happened to us wasn’t unlike what happened to most of the rest of the industry, specifically, and here in Texas.
Most of these buildings were rurally based, and the strike price, as it relates to the purchase price that MedEquities paid for these buildings, and the rents that we were paying — it just became somewhat untenable for us to keep up with all of the things that have been widely reported on: Lower lengths of stay, coupled with significant Medicare Advantage penetration in some of these markets, which made it difficult for us to keep operating these buildings in a way that would be beneficial to MedEquities.
Honestly, Gary Blake and his team at Creative [Solutions in Healthcare], they do a great job at running these particular types of facilities — which are more traditional SNFs, in both suburban and rurally located areas, and so we wanted to make sure that the buildings went to a great operator, which they did in Creative Solutions. And we wanted to make sure the patient share was minimally affected. We didn’t want to fight it or dig our heels in as it relates to MedEquities, because they’ve been a good partner with us.
What types of payers to do you target with the transitional model? How do you set yourself apart in the marketplace?
I think one of the things that’s big for us, and we talk about it a lot within our team, is this idea of partnership. I’m of the opinion that our industry is essentially a utility as it relates to having conversations with payers. When I go and have a conversation with a Medicare Advantage payer, for example, I’m one of 40 or 50 people in that bucket. And the reality of the situation is, as I’ve gathered, when we sit down at the table, they’re speaking French and I’m speaking Italian.
We kind of understand each other, but their needs are very, very different from my needs. I want to talk about RUG rates, and I want to talk about length of stay. They care more about total cost of care and admissions per thousand to a hospital and RAF scoring. And so what we’ve tried to do at OnPointe is situate ourselves and become more educated on: What are our paying customers telling [us]? What do they want out of us? If we can figure that out, we can create really broad, beneficial partnerships.
Sometimes it’s not high-paying Medicare Advantage patient populations. We have a building in Albuquerque, N.M., for example — of the 369 beds, 300 of those patients inside are Medicaid patients. But there’s an absolute need for that building there, because that building fulfills a societal need, it fulfills an economic need for the city and for the state. And so we have a lot of interesting relationships that developed out of that.
What are some examples of interesting relationships that have worked?
Think about it from the payer perspective. One of the things I talk about a lot is this idea of: 10% of the population accounts for about 50% to 60% of the total spend in health care. And that 10% of the population tends to have two or three chronic conditions, they tend to have some psychosocial issues, and they tend to have some issues in terms of social determinants of health, which make it more costly to care for them. Not all of those patients are Medicare Advantage patients.
In fact, a good portion of them are Medicaid patients that cost health plans quite a bit of money. And so … we partner with the health plans to say, listen, this building serves a vital need in that it keeps patients that are somewhat difficult to manage from a cost perspective … safe, it creates a community where they’re not only valued but where they’re well cared for from a health perspective — and by the way, it’s much [more] effective and efficient as it relates to cost for us to care for them versus them bouncing in between the hospital nine or 10 or 12 times in a calendar year.
When I talk about creating partnerships, that’s what the plans care about. They care very much about the fact that: If that patient goes to the hospital, I’ve likely lost money on that patient for the calendar year. And so if as an operator I can show you [that] I’m going to help you with that specific population, can you help me as it relates to some interesting contractual opportunities with your other members?
For example, on the Medicare Advantage side in Albuquerque, N.M., we’ve been able to negotiate some interesting contracts as it relates to taking risk on lengths of stay, and having almost a lump-sum payment per post-acute episode. But we’ve done that because we’ve gone into a market and said: What do the payers care about? What do they want us to do?
If we go in and start talking about 85% of RUG, we’re going to see their eyes glaze over. That’s not just what they work in day in and day out. But if we go and we say: Here’s a targeted approach to your chronic care population, and oh, by the way, we know them very well, because we know how to deal with chronic care populations, because we’ve been doing it for 40, 50, 60 years in our industry — then we’re able to create steps to the path of mutually beneficial partnerships.
If you look at the tea leaves that CMS is sending out — and by this point, they’re not tea leaves, they’re mandates — they are desperate for providers to take risk. They want providers to take risk. They want providers to have skin in the game, and they’re trying to create these new effective models. And honestly, I’m excited about that.
In a previous life, at the beginning of my career, I was a facility administrator. I ran a skilled nursing home. I would go into Mrs. Jones’s room on a Friday afternoon and say, “Hey, you don’t really need to go home today, because who knows if the home health is going to show up on time? If you leave Monday or Tuesday, you’ll be fine, and you’ll get therapy here over the weekend.” And honestly — I didn’t feel good doing that. I said, “This doesn’t make sense.” The incentive for me was just to keep the patient in the bed longer. And anybody who’s telling you different isn’t telling you the truth. That’s where the incentive used to lie.
And so as CMS is changing that, I think it’s incumbent upon providers to embrace that. That is where health care is going. It’s $3.2 trillion of health care spend. The spending is not the issue. We spend quite a bit of money on health care in this country. What the issue is is the cost. And we can effectuate that by how we deliver it in value-based models.
We run to risk. We try to move up the premium ladder as quickly as possible, because we feel like, over a 40-, 50-, 60-year period in this industry, we’ve developed some very interesting skill sets as it relates to managing chronic disease in a cost-based model.
If you think about hospitals, hospitals don’t do that well. Their business model is built to save a life, or to deliver the baby. If you think about the payer model, the payer model was built not to spend money. That’s where they’re at. They try not to spend money, and they’re also very, very good at enrollment and advertising. You don’t see a ton of Ensign or Genesis ads on the Super Bowl, but you’ll see a lot of of Humana and United, because they’re really good at enrollment.
The SNF model is a cost-based model. In fact, we were cost-plus for the longest time. So we actually have a skill set that is unique in this marketplace in that we can manage chronic care illness, and those with chronic care conditions — and remember, those are the 10% that are costing 50, 60, 70 cents of every health care dollar. We can manage those in a way that’s relatively effective.