How to Avoid the Nursing Home Death Spiral

I was recently mining North Carolina Medicaid data and found what looked like a nice opportunity: a large, under-served Medicaid population in an area that is relatively easy to staff. All that was missing was some guidance and encouragement, right? I showed the data to a colleague who basically said: "Not worth your time. Move on." Wait. What?

He didn't mean the Medicaid population didn't need help. What I didn't know was that this facility is having problems paying their bills. This non-payment most likely reached the point that it was effecting the care of residents. Once that point is reached, reimbursement is reduced and bills get even harder to pay. You can see where this is going.

What happened and how can it be avoided? Well I don't know exactly how this facility initially got into trouble. Bundled care, shifts in payer sources, bad contracts and poor focus are all candidates. What matters most is how to avoid it.

Financial guru Dave Ramsey will tell you to prioritize your payments. His priority list looks something like this: (I've probably missed a few.)

  1. Mortgage or Rent - Don't lose your home
  2. Food - You've got to eat
  3. Water bill - Water is good
  4. Electricity - Keep the lights on
  5. Car Payment & gas - Get to work
  6. Etc.

The car payment is high on the list because it's how you earn your income. If you lose that you can't pay anything.

In skilled nursing, therapy is the car: it's how you generate revenue. Even if RCS were here today, in case-mix states therapy is still critical.

It's tempting to get behind on payment to your therapy company:

  1. The bill is one of the largest you pay.
  2. They won't complain for a while and sometimes a long while.
  3. Their employees aren't your employees. You know the therapy company will keep paying their employees at least for a while.
  4. Therapists are normally dedicated and hard-working and will do what's best for the patient.

All those things are true. Here are some other things that are true:

  1. Your therapy company will start making moves to protect themselves which will have a significant impact on you. You may not notice until it's too late.
  2. Your payment reputation isn't a secret. People talk. My colleague doesn't have a relationship with this building but he knew what was going on through word of mouth. Non-payment will make it difficult for you to get a good contract with a good provider in the future.

Back to that first point: what kind of moves will your therapy company make once you stop payment or get behind? They will begin to reduce exposure to you by reducing costs. That means a likely reduction in staffing in your building. Here's what happens next: (in a case-mix state)

  1. Med A therapy prioritized (because it always is)
  2. Med B therapy drops
  3. 6 months passes
  4. Medicaid PPD drops significantly

For this particular facility, we're talking about more than $220k per year. (Based on simulation results.) That's a lot of money to lose in a year if you are already struggling to make it now. Worse, it will take 6 months to get it back even if you start today. But you can't start today. You don't have any money. (Cue spiraling down.)

Your therapy company isn't doing this to punish you. They are acting rationally. It's a concept game theorists call Minimax. You've become an unreliable source of revenue so they've got to minimize the amount of money they could lose. You'd do it too. (By the way, if your facility weren't part of a chain, the therapy company might have already left you.)

Obviously you should pay everyone you owe. But you must carefully prioritize when things get tough. You may end up doing your own laundry, housekeeping and landscaping but do not cut off your air supply. 

(Note: If finances are getting difficult, GET HELP before you are faced with deciding who not to pay.)