I Ruined the SNF Value-Based Plan and What We Need to Do About That

Among the many mistakes I’ve made in my life, one is that I ruined the SNF value-based care plan. This is the nuance to our Medicare Part A payments where we get a 2 percent bonus, or a 2 percent withhold if we are good or bad at hospital readmit rates. My mistake ruined its ability to improve care. Mistake may be too strong a word. I was doing my job as the CEO at AHCA. But my actions ruined the program. Fortunately, this is fixable.

Here is the story. When I arrived in DC back in 2011 to run AHCA, I quickly learned about a thing called the “doc fix.” Long before I arrived, Congress had cut physicians Medicare reimbursement in a big way. The cut was so deep that Congress never let it go into effect. But the budget rules required that for Congress to undo the cut, it had to cut some other provider, or combination of providers by $2 billion. It had to do this every year. The doc fix was a bill that Congress would pass at the end of the year, every year, which took $2 billion from one provider and gave it back to the docs. Provider groups would lobby/beg Congress to not be the “pay-for.” This pitted hospitals, nursing homes, hospice, and home health against each other.

In 2011, 2012, and 2013, we succeeded in not being a pay-for in the doc fix. Other provider groups had to pony up and Congress left us alone.

Our luck ran out in 2014. Staffers from the key congressional committees told us that it was our turn. Nursing homes would have to pay the $2 billion and Congress would extract it by reducing our Medicare rates. Horrible news. 2014 was not a great year to own facilities. Margins were low, state Medicaid rates were much less than now, and CMS had recently taken group and concurrent therapy away. Getting cut was the last thing we needed.

Fortunately, AHCA produced an elegant solution, and our members went along with it. Our solution was that instead of everyone getting cut 2 percent, we would create a sliding scale related to your hospital readmission rate. Providers who are very bad at reducing readmits could face a cut of 2 percent. But providers who were good at reducing the number of readmits would get an increase of 2 percent. We adjusted the buckets enough so there were more losers than winners, and the government still got its $2 billion. But the idea was that great providers would get rewarded and overall readmit rates would drop. That, of course, would be an excellent result for providers and residents.

I was incredibly proud of our Board for supporting this idea. The Hill loved it. Congress isn’t used to providers who have solutions. This was a turning point in how DC viewed skilled nursing homes. We became a part of the solution, rather than a typical, whining advocacy group.

And then there was a major turn that could have cost me my job. After convincing the Board, the state execs, and all our major constituency groups that we should voluntarily agree to this 2 percent cut, we lost control of the proposal. Congressional staffers loved the idea of a withhold and a bonus but didn’t think 2 percent was enough. They wanted 5 percent! A 5 percent Medicare cut for many providers back in 2014 could have been lights out. What happened is something that often occurs in DC. You come up with a great idea, you offer it up, and then you lose control over where it ultimately lands.

There was enormous drama over this 5 percent issue. Despite my initial pleading with congressional staff, at the 11^th hour, Congress came dangerously close to a 5 percent withhold. It looked like it was a done deal. I thought I had made a horrible mistake for the sector and for my career. I begged congressional staff and told them that unless a change was made, I would lose my job! I told all of our outside lobbyists that if it came in at more than 2 percent, they would all lose their jobs! I wasn’t going down on my own. Fortunately, we prevailed. At the absolute last minute, the 5 percent came out, and the 2 percent language was put into the bill. We all survived.

We celebrated that night, but I now realize how wrong I was.

The congressional staffers were smart. They knew that for a value-based care program to change behavior the withhold and bonus need to be huge. The number must be significant enough that providers will change behavior. Staffers didn’t want the number to be 5 percent because they were being punitive. They wanted the reward and penalty to be 5 percent because they were guessing 2 percent would not be enough to change behavior.

It’s been a little over 10 years now, and we now know the staffers were right. My efforts to keep the number at 2 percent saved my job but ruined the program. A 10-year lookback at the program has demonstrated that it hasn’t reduced readmits. Dr. Chris Tachibana recently published a research brief for the University of Pennsylvania’s Institute of Health Economics. Tachibana looked at 17.4 million Medicare admissions over a 10-year period and concluded, “Hospital admissions within 30 days of discharge were not reduced by the Value-Based Purchasing Program.” Fortunately, the research also found that we didn’t make things worse. The brief concludes, “The program did not have adverse effects either: It did not increase 30-day mortality or change patients’ return home within 100 days of discharge.” https://ldi.upenn.edu/our-work/research-updates/research-brief-medicares-skilled-nursing-facility-value-based-purchasing-program-fails-to-lower-hospital-readmissions/

The brief gives three possible explanations for why rates didn’t decline. All make some sense. They are:

1. SNFs may not have the resources to reduce rates.

2. A 2 percent incentive may not be enough.

3. We may not have enough time to know if it works, particularly because COVID changed everything starting in 2019.

I’m pretty sure I know the problem. I’m the problem. The 2 percent is just not enough to change behavior. I am aware of a few organizations that have made capturing the 2 percent bonus a priority, but that appears to be a minority.

What is the answer? The answer is that the congressional staffers were right. Value-based payments are a great strategy. They do move behavior. But the reward has to be sufficient to get our attention. Two percent is just not enough. My suggestion is that no one gets hurt. Instead that we offer additional funds to providers who achieve great results.

Moving forward, the sector needs to be as bold as the AHCA Board was back in 2014 when it made the decision to offer up a cut in exchange for better care. Our value-based care payments are changing. CMS has made changes so that our measure won’t just be readmission rates. We will also be evaluated on infection control, staffing, falls, function at discharge, and turnover. But the 2 percent hasn’t changed. For this to work, it’s got to be more. Advocating for quality care will always be the right lobbying strategy. For that to be real, we must put material incentives into the proposals.

I ruined it in 2014. I hope the sector fixes it now.