When Ultra Becomes Normal

The latest PEPPER shows that the trend towards Ultra High therapy continues. Even as the overall number of therapy days decrease, the number of days of Ultra High is climbing. The average of all Skilled Nursing facilities at the end of 2014 was 60.91%, up from 57.27% in 2013. If the current trends continue we will end 2015 with around 65% of Part A patients in skilled nursing facilities in Ultra High therapy.

Why is this happening? Here are some possible reasons:

  • Patients arriving in nursing homes are better suited for more therapy due to some unknown factor like improved surgical technique
  • Better understanding of therapy; how to deliver more therapy in a shorter time to improve outcomes
  • Facilities make more money on Ultra High residents so they gravitate towards UH

Okay, that got ugly fast. The cynical among us would zero in on that last point. Let’s take a cynical, closer look.

Let’s say we have a Medicare Part A patient in the Very High RUG category (RVB). For that patient we will be reimbursed $394.06 per day. (I am using rates from Clark County Ohio for this analysis because the wage index is closest to average. I am also assuming the B end split.)

Now let’s say we are considering whether to move this patient to the Ultra High RUG (RUB) and we are going to base our decision solely on the financial implications of the change and ignore clinical reasoning. (I mentioned this was cynical, right?) The only thing we are changing is additional therapy.

At the Ultra High level we would get $530.44 per day. That’s $136.38 per day more so that’s good. However, we have to pay the therapist to provide an additional 31.43 minutes per day. According to the Bureau of Labor Statistics, therapist make the following hourly in Springfield Ohio*:

Occupational Therapist$41.95
Occupational Therapist Assistant$30.40
Physical Therapist$42.72
Speech-Language Pathologist$41.27

As of May 2014 - * Note that these values were taken from nearby Dayton due to lack of data in Clark County.

For simplicity’s sake we’ll average those together and use $36.07 per hour or $0.6012 per minute. I’ll assume our therapists are 75% productive so we’re paying $0.8016 per minute of therapy. That’s $25.19 per day to get an additional $136.38. $111.19 of that is margin.

What other expenses do we have associated with getting the Ultra High RUG versus the Very High? Well, none really so that $111.19 is really incremental revenue. So I think it is safe to say there is a financial incentive to move the patient to the Ultra High from Very High. We can make an additional $111.19 more than it cost to provide.

Look at the chart below. Expenses increase almost linearly but reimbursement doesn't. We can attempt to explain why reimbursement drops from Low to Medium since Low requires restorative nursing but what about Very High to Ultra High? If you continued the straight line created by Medium, High and Very High, you would predict Ultra High to be around $426.38 per day which is $104.06 less than actually gets paid.

We've created a powerful incentive to push everyone into the Ultra High RUG and not surprisingly, that’s what happening.

A potential solution, first suggested to me by a wise colleague, is to take that incentive away. His suggestion is increase the RUG payment proportional to the increased cost of providing the therapy that produced the RUG. That sounds very obvious after you hear it. (So obvious I haven’t heard it from anyone else.) How would that look?

The idea is to make it so you get paid more as the RUG increases, but only enough to cover your additional expenses. Lower RUGs pay a little more and Ultra High pays a bit less. The average of the RUG payments is the same as before, we've just distributed it evenly.

You can see this makes intuitive sense. As you spend more on therapy you get that much back in reimbursement but only that. You make the same margin on all RUGs so the only incentive to pick a particular RUG is the clinical part we ignored earlier. 

Will this work? It certainly seems like it to me. The pressure to drive all the RUGs to Ultra High is basically gone. There is no Ultra High windfall. If you remember when the financial incentive for group therapy went away group therapy pretty much went with it. I don’t know if it would be that drastic or happen as quickly as that did, but this model is at least a start.