The rehab provider’s survival guide: Quick change is the key to success

Strategic planning isn’t enough; prepare for the worst

Thanks to the Balanced Budget Act of 1997, rehabilitation providers face a whole new set of challenges. Some of the changes are so immense that no one could have predicted them a few years ago. And when the 106th Congress considers next year’s budget, things are likely to change even more.Rehab Continuum Report asked health care consultants who specialize in rehab what strategies they suggest to help their clients stay afloat in the changing health care market.

"No longer is strategic planning enough for rehab providers. It’s still important, but it’s hard to plan five years out in an industry that is changing so rapidly," says Cheryl Arnold, MSA, PT, principal of Dynamic Rehab Solutions, a consulting firm in Tuscaloosa, AL. It’s more important for your facility to be ready to change quickly to keep up with reimbursement and regulatory changes, she says. (For advice on some changes you may want to consider, see story, p. 19.)

There’s one thing that’s certain — no matter what Congress may decide, your reimbursement is likely to go down, not up. "Reimbursement is going down in all post-acute settings. It used to be a no-brainer to get into home health and subacute services, allowing you to provide additional services and make money at it. Now it’s not going to be such a straightforward financial incentive. Providers are going to have to be more sophisticated in terms of financial analysis," warns David Mungenast, a principal with Chi Systems, a division of Superior Consulting in Ann Arbor, MI, and president and chief executive officer of Southwest Rehab Hospital in Battle Creek, MI.

Providers who have high caps under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) will have to make significant changes in operation, particularly in lengths of stay, to bring the per-discharge cost below the TEFRA cap, Mungenast says.

Many hospital-based rehab units have used their incentive payment to show administration they were making a positive contribution to the bottom line. The incentive payment essentially was free money, but those days are gone. "We’re not going to be able to say that rehab contributes X amount free and clear to the bottom line. The margins aren’t going to be there any more," he says.

Mungenast tells of small community hospitals in Michigan that rely on rehab units' TEFRA incentive payments to help them break even. When the rehab unit can no longer carry overhead costs, the whole hospital may be in jeopardy.

Rehab must show clinical worth

Rehab units in larger organizations should not be complacent, either, just because the bills are being paid, he warns. In the past, those units have pointed to TEFRA incentive payments and their contribution to the hospital’s bottom line. Now they’re going to have to demonstrate the worth of rehab from a clinical perspective, he says.

With an $11,500 TEFRA cap, Southwest Rehab Hospital has always had to be cost conscious, Mungenast says. However, the hospital faces a $150,000 loss of revenue from incentive payments. "For us, the incentive payment is our margin for our inpatient program." Southwest cut its length of stay by implementing critical pathways from acute care into rehab and is now extending them into outpatient and home health. "There really is a continuum, and we now are managing patients through the whole episode of care and putting the patients in the most appropriate place," he says.

The Balanced Budget Act has made changes in rehabilitation reimbursement across the spectrum. In addition to immediate cuts in funding, the budget act provisions are encouraging the growth of managed care by incentivizing Medicare HMOs, says Nancy Beckley, MS, MBA, president of Bloomingdale Consulting Group in Valrico, FL.

She encourages rehab providers in areas where there is not a heavy penetration of managed care to keep an eye on the market and not let Medicare managed care patients get away from them.

She tells the story of one system that ended up laying off 1,500 people because its competitors got all the Medicare HMO business. "When managed care goes into a market, you have less than a year to get a toehold. What I’m hearing all around the country is people saying that all of a sudden they are deciding to call about being in a network, and they can’t get in," she says.

The budget act attempts to equalize average adjusted per capita cost rates that Medicare gives to manage care plans for each enrollee. Medicare offers weighted reimbursement based on age, sex, and Medicare status. Rates are designated by counties. Some have been high; others low.

HCFA is raising the minimum rates and gradually blending the regional average with the national one. The upshot is that counties with low reimbursement rates will be brought up to the minimum and become more attractive to HMOs.

Smart rehab providers should have a good handle on their costs and be ready to move when managed care enters their market, Beckley advises.

Here are other ways to survive:

• Educate your clinical staff about the financial realities your institution faces. "The staff that is making the decision about length of stay and patient care should have this information in mind. These are collective decisions and collective issues, and not just upper management’s problem," Mungenast says. Staff should be aware that mandates to cut costs are not just to advance someone’s career but are needed for the financial health of the institution. "Make your staff understand that the decisions they make every day affect the outcome of whether your hospital stays viable."

• Be prepared to be proactive in financial discussions that take place within your institution. Have a strategic plan or approach in mind when these issues come up, Mungenast suggests.

Educate all your managers about reimbursement changes so when the chief financial officer calls, they are prepared to talk intelligently, he says. "You should admit that the changes will affect your bottom line, then focus on how productive rehab is as part of the system because of what you are able to do and how you interact with other parts of the hospital."

• Understand what managed care providers are looking for. They’re not buying modalities or treatment, they’re buying an outcome, Beckley says.

"You have to think outside the box. We’ve focused so much on outcomes studies that few people are looking at real outcomes. The real outcome isn’t an increase in range of motion. It’s that the patient can go back to work," she says.