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The history of the skilled nursing sector is one of frequent adaptation. Since the passage of the Social Security Act of 1935, which began a process of tying this critically important space to government funding and oversight, it has survived numerous changes of direction and upheavals.

It has not always been easy. The passage of the Balanced Budget Amendment in 1998, for example, shifted payments from the old cost-based system to the Medicare Prospective Payment System. 

Combined with significant debt, rising labor and liability costs, and the flight of capital from the sector’s shrinking margins, that shift resulted in a string of major bankruptcies.

More recently, the sector adapted to the Resource Utilization Groups system, with fewer casualties, but plenty of headaches. Operators have had to continually adjust to new regulatory requirements and targets, too.

In short, the sector has a proven history of surviving change, but not without casualties along the way.

To survive, and to flourish, it is critically important to understand the nature of the changes impacting the sector today. Failure to do so, particularly with the major disruption that is now just beginning to take hold, will likely result in some operators going out of business.

There are four key concepts that define the future for post-acute and long term care: home, value, partnerships, and risk.

Today’s providers cannot understand the future of care for frail elders, and therefore the future of post-

acute, long term, and senior care, without understanding the potency of the focus on home-based settings.

This drive to the home is something that consumers desire, technological advancements are increasingly making possible, and payers and policymakers are embracing because they see it as a way to achieve meaningful health care dollar savings.

Value can no longer be defined by the old “heads in beds” occupancy model. It will be determined by outcomes and the total cost of care for the resident or patient, and it will be driven by payers, especially managed care plans. That cost will be measured either across a particular health care episode or across the entire health care cost of each individual.

When value is defined this way, it will make managing and coordinating care across silos—and integrating clinical and care management and delivery—essential. That leads to partnerships.

It would be difficult and unrealistic to expect one provider to be able to provide all the different settings and clinical capabilities that might be appropriate for a frail elder with multiple chronic conditions and functional limitations.

To manage this individual with the best outcomes and at the lowest total cost will require partnerships.

That means formalizing relationships with folks skilled nursing providers may have once either ignored as irrelevant or viewed as competitors, such as assisted living and home health care providers, for example

Today’s referral relationships, which are often based on little more than doughnuts and coffee, will in the future be driven by clinical data that demonstrate outcomes and total cost-of-care savings in health care delivery. These relationships will lead to preferred networks and risk sharing.

The importance of partnerships helps to explain all the moves toward vertical integration that are now taking place. Recent headlines point to a parade of major players integrating their offerings: Sanford Health and Good Samaritan, ProMedica and Welltower and HCR ManorCare, CVS and Aetna, Walgreens and Humana, Walmart and Anthem.

Vertical integration, both upstream to hospitals, health systems, physicians’ organizations, managed care plans, and payers, and downstream to home health care, home care, and hospice, has already become important and will only become more so.

It’s one thing to produce quality, but as skilled nursing providers have experienced painfully over the past three years, it’s another thing entirely to get paid for it. Producing quality outcomes, and generating health care savings—in other words, delivering and demonstrating value—is not sufficient today for most skilled nursing providers to earn financial rewards.

Without both the willingness and ability to take risk, it’s extremely difficult for skilled nursing providers to get financially rewarded for the quality and health care dollar savings they are delivering. Whether its subcapitated or full, taking risk for the health care of residents, even when they’re not in skilled nursing buildings, is becoming increasingly important. To do this necessitates good data that can easily be shared with other providers and payers.

In the future, health care will go to where seniors, especially frail seniors, live, rather than forcing them to go to the hospital or doctor’s office to receive their health care. Baby boomer consumers will demand it, technology will enable it, and payers, especially managed care, will pay for it because they believe it will produce meaningful health care dollar savings.

Even though this process may take a decade or more to fully transpire, there are implications that the skilled nursing sector should be considering today. One implication skilled nursing providers need to accept is that in the future, any type of rehabilitation that can be done in the home—whether that is a single-family residence or an apartment or an assisted living community—is more than likely to be provided there.

Due to technology and enhanced staffing, downstream settings such as home care, home health care, and assisted living will be able to deliver similar outcomes at lower cost. Fighting battles to keep patients from going to settings such as these is ultimately a losing proposition for skilled nursing providers.

Rather than stopping the flow of residents to these downstream settings, skilled nursing providers instead need to look upstream to long-term acute care hospitals and inpatient rehabilitation facilities. Skilled providers must assess whether they have the staffing and clinical expertise to provide similar outcomes for patients presently going to those settings. If the facility believes it can achieve that, it has an enormous opportunity to provide meaningful total cost-of-care savings while producing good outcomes.

Looking upstream also means looking at hospitals, specifically at medical-surgical (med-surg) units. In the future the focus on saving health care dollars will not just be on the post-acute setting, but also on the pre- or as some call it, the peri-acute setting.

These settings can effectively keep individuals out of the hospital, especially frail elders with multiple chronic conditions and functional limitations. As providers are aware, going to the emergency room and then being admitted to the hospital is usually not a positive health experience for these seniors. The goal will be to keep them out of the hospital to the maximum extent possible.

What about thinking of a skilled nursing community as a “tune-up center” that can be attractive to managed care payers that struggle with high-need, high-cost plan members? These patients suffer from multiple chronic conditions such as COPD, congestive heart failure, and diabetes. These conditions currently result in emergency room visits and three-day stays in the hospital.

If a facility can demonstrate that it can provide the staffing level and the expertise to be able to offer an alternative, the managed care plans may someday attach an urgent care center for their members on one end of the nursing center and an ambulatory surgical center on the other. The length of stay will be short, probably only three to five days, but the nursing center will be rewarded for keeping plan members out of

the acute care setting while effectively managing the health issues that arise from chronic conditions.

To be this kind of provider, however, the center will have to demonstrate staff and clinical expertise and have the data to back it up. But the skilled setting, with this type of expertise, offers enormous cost savings as well as the advantage of keeping frail elders out of one of the most dangerous environments in the world for them: the acute care hospital.

This kind of focus and expertise will also enable skilled nursing providers to effectively manage the high-acuity, high-need, long-stay population of the future by identifying those most at risk and proactively taking steps to keep those individuals out of the emergency room and acute care hospital.

The skilled nursing sector is showing signs of a major shift—and it’s likely to change the way the entire sector does business, from managing the multiple chronic conditions of its residents to breaking down old silos and finding ways to partner across the spectrum of care.

Recent headlines announcing mergers, acquisitions, partnerships, and major restructuring efforts are documenting the early stages of a move toward vertical integration across the health care delivery system. It’s slowly beginning to shift from a focus on acute care to a focus on chronic care.

Payers are increasingly focused on the 10 percent of Medicare beneficiaries who account for 60 percent of the total Medicare spend and those who are at immediate risk of becoming these high-need, high-cost health care consumers. These individuals are overwhelmingly those with multiple chronic conditions and functional limitations.

Most acute care providers and health systems have little experience or expertise in the management of chronic conditions—whether post-acute or peri-acute. The opportunity for post-acute and long term care providers is huge. The downside of not adapting to seize the opportunity is equally as large.