Rachel Woods: Define for me the post-acute part of the healthcare ecosystem. What services are we talking about? What facilities are we talking about? And where do you want us to focus our attention today?

Monica Westhead: When we talk about post-acute care at Advisory Board, it's a pretty broad term. It encompasses a lot of different settings that you might go to after hospital discharge for rehab, for additional care. So post-acute, as we think about it, includes LTACHs, long-term acute care hospitals, IRF, inpatient rehab facilities, SNFs or skilled nursing facilities, home health, hospice or end of life care, and occasionally senior living as well.

It's a little bit different from the other parts of the industry, but it still is part of the post-acute continuum. But today, I think if we're talking about the parts of the industry that are potentially needing our focus the most right now, we're going to talk about SNFs.

Woods: And how would we describe the state of skilled nursing facilities today?

Westhead: It is a rough time to be a skilled nursing facility. It is a very challenging industry to be part of, it always has been, but the conditions most recently have certainly become untenable for a large portion of the industry.

Woods: What do you mean the conditions? Is it that demand has just gone up? I'm thinking about the aging population, I'm thinking about the fact that patients that we have tend to have more complex care needs because of everything that we've been living through across the last couple of years. Is that why the situation has gotten harder?

Blake Zissman: So it's not just because of demand, there are two fronts here. You've got an unprecedented SNF staffing shortage and issues with funding. So on the staffing shortage side, SNFs are the only industry across the entirety of the continuum that haven't gotten back to 100% their pre-pandemic staffing level. Every other site has, it's not projected to get back there until 2027.

So now funding — when SNFs are reimbursed, primarily about 62% of their residents are on Medicaid, which is the lowest reimbursing insurance payer. Now, especially as Medicare Advantage expands, which prioritizes shorter length of stay, SNFs are having an even greater difficulty here.

Westhead: It's also important to point out that Medicare Advantage also pays less per day than Medicare Fee-For-Service. So as more Medicare beneficiaries choose Medicare Advantage, the SNFs are receiving less per day to care for those patients and they're also seeing fewer days for those patients as well.

Woods: So things aren't good for skilled nursing facilities, but just how bad are we talking about here?

Zissman: An unprecedented number of SNFs are closing.

Woods: Do you think that the rest of the industry knows that? I mean, I'm thinking about all the members that Advisory Board has, I'm talking about all of the listeners that listen to this podcast. Are folks aware that this is such a big problem right now?

Zissman: I'd say primarily, no.

Westhead: I think at this point it's still pretty locality specific. There are areas of the country where there have been enough closures to significantly disrupt hospital discharges and that's why we're starting to see so much more attention paid to this.

I've been working in the post-acute space for about a decade now and this year is probably the biggest year that I've had yet for hospitals and health systems asking me questions about skilled nursing facilities because it's starting to impact their throughput. If you have these SNF closures happening, what happens is you can't discharge patients from the hospital into the SNF, you can't get patients from the emergency department into the hospital, and that impacts the hospital's bottom line.

Woods: And my understanding is that same challenge happens even if the SNF isn't closing because of all of the challenges that Blake just mentioned, that we still aren't able to get people out of the hospital and into the SNF?

Westhead: Yes. The throughput problem is obviously most severe in markets where SNFs are actually leaving the industry, but even where SNFs are not closing, we're still seeing them not being able to accept new patients due to staffing shortages. We're seeing them having to close units or having to close beds as a result.

So, everything that Blake was saying about the staffing issues as well as the reimbursement issues, which are making it harder for them to pay more staff are causing these backups throughout the entire delivery system.

Woods: But our listeners might be thinking about the fact that there are alternatives to skilled nursing facilities. I'm thinking specifically about any kind of home-based care that we know that people tend to like more and be better for the patient experience than necessarily going to something like SNF. Isn't that just an alternative that people can use here?

Westhead: In some cases, yes. It is not a universal alternative. It doesn't work in all cases. So part of the reason why you can't just send everyone home is because a lot of the people that are transferring to SNF need 24/7 support. They need someone to help them with their activities of daily living, they need someone to make sure that they take their medications on time. Medicare Certified Home Health does not cover that. So it'll cover the therapist visit, but it won't cover someone to be in your home and help you get dressed and help you eat.

And so when someone has those needs, which the vast majority of people going into a skilled nursing facility do, if you want to have that in the home, either you need to be able to pay for it out of pocket, which can be extremely expensive, or you need to have a loved one who is available to be with you 24 hours a day.

So home-based care at this point cannot be substituted for all skilled nursing facility utilization and it's important for the industry to understand that many of these people can't just safely be sent home.

Woods: It sounds like there's some misconceptions around what SNFs are, what they are not, what they can do and the relationships that they have to other entities in healthcare. Is that right?

Westhead: Relationships between skilled nursing facilities and specifically health systems have been fraught for a very long time. As long as Advisory Board has been in the post-acute space, we have been doing research on partnerships between acute and post-acute care. Fundamentally, acute care providers and post-acute providers have different incentives that actually oppose each other and as a result there is mistrust between the two types of providers.

Woods: Monica, you mentioned earlier this idea that other stakeholders even within our own industry may not fully understand the scope of this challenge. Why do you think that is?

Westhead: Hospitals and health systems have very different incentives from skilled nursing facilities and it puts them at odds a lot of the time. So hospitals and health systems operate in a world where they are accountable for outcomes that occur after the patient leaves the hospital. Think readmission penalties, think value-based payment programs, bundled payments, organizations that are ACOs or that operate their own health insurance product. Post-acute providers largely are cut out of those programs.

So SNFs cannot by themselves participate in the VBP program. They do have a readmissions penalty, but it's very differently structured than the one in the hospital. So what you have is a hospital that's desperately trying to contain costs for patients after discharge, and you have a skilled nursing facility that is trying to remain profitable and able to take care of those patients. And the more you reduce that length of stay, the more you reduce that SNF utilization, the more challenging it is for them to do that.

Woods: And that strikes me as really hard because these two stakeholders also need each other quite a bit, but their incentive structure is set up for them to do very different things.

Westhead: That's absolutely the problem here, and it's been the problem for years. The misalignment of incentives causes tension, it causes conflict and it frankly puts organizations in a bit of a power struggle with each other that doesn't necessarily result in the best outcome for either of those providers or certainly for the patients, despite both sides trying their hardest to make things right for the delivery system.