Here’s a primer on forming an LTACH

Rehab facilities that join forces with acute care hospitals can find a good fit in starting a long-term acute care hospital (LTACH), a post-acute care expert says.

Described as "hospitals within hospitals," LTACHs fill a much-needed continuum of care niche, particularly as Medicare and health maintenance organizations pressure acute care hospitals through lower reimbursements to reduce lengths of stays, says Linda Dean, owner and president of Deadon, a health care consulting business in Irving, TX. Dean has developed 12 LTACHs, including the new Good Shepherd Specialty Hospital-Allentown in Pennsylvania.

"The typical LTACH patient is someone who comes and has a diagnostic work-up or surgery and needs an acute level of nursing for an extended period of time," Dean says.

The targeted population for LTACH care includes rehabilitation patients; thus, a rehab company might find it strategic to start such a facility. Forming a LTACH requires considerable investment of time, funds, and organization. Dean offers these suggestions for what to consider before diving into this new niche market:

1. Determine whether opportunities are available. Good Shepherd Rehab Hospital of Allen town formed Good Shepherd Specialty Hospital after being pursued by local acute care hospitals. Likewise, any rehab hospital considering such a move should see if the market needs an acute care facility to which hospitals can refer their intensive care and cardiac care patients. Also, the hospital needs enough space, such as a hospital floor, to provide for an LTACH because those facilities typically are located within an acute care hospital.

2. Research all state and federal regulations. The Health Care Financing Administration in Baltimore requires LTACH patients to have an average length of stay of 25 days or longer. It also requires LTACHs to be owned and operated separately from the acute care hospital in which they are housed. They must have their own governing boards, administration, employees, and medical staff.

While the LTACH is permitted to purchase ancillary services from the host hospital, those services cannot exceed 15% of the operating expenses, excluding lease payments, of the LTACH. Ancillary services may include lab services, diagnostic tests, dietary services, and other items.

3. Understand the reimbursement structure. LTACHs are not part of the prospective payment system. Instead, they are reimbursed based on their costs under the Tax Equity and Fiscal Responsibility Act of 1982. Payments are about $22,500 per discharge, Dean says. A feasibility study should include a look at Medicare reimbursement of potential LTACH patients, she adds.

For example, the feasibility study for Good Shepherd Specialty Hospital included a review of the host hospital’s last 12 months of patients in terms of their Medicare reimbursement and costs. It also estimated which patients would have been transferred to the LTACH and where they actually were transferred.

Dean estimates an average daily cost of an LTACH patient in a high level of care is $1,100 to $1,200. An LTACH patient requiring a low level of care may cost $400 to $500 per day. Because that is significantly less expensive than the average cost range of an intensive care unit, which is $1,500 to $2,500 per day, managed care companies typically welcome referrals to an LTACH, Dean adds.

4. Know possible obstacles. Administrators involved in setting up an LTACH will need to spend time educating referring physicians and discussing the concept of LTACH care with state health departments and regulators. "Some states are still trying to figure out what an LTACH is and how it is different from a regular medical-surgical hospital," Dean says. "We have to meet all the regulations of a med-surgical hospital, although we have to do things on a much smaller scale."

For example, an LTACH would have to meet all the criteria an acute care hospital has to meet when it comes to credentialing, accreditation, and policies and procedures.

Another potential obstacle is the start-up cost, which can be in the millions, when renovations and equipment purchases are considered. The LTACH needs its own cardiac monitors, respiratory monitors, therapy equipment, medical records equipment, and other items necessary for a hospital’s daily function.

Good Shepherd Specialty Services leased its actual beds from the host hospital. Because the bed lease is considered a part of the building lease, it doesn’t count toward the rule that no more than 15% of operating expenses can be paid to the host hospital.

5. Determine staffing requirements. Good Shepherd Specialty Hospital opened with about 30 employees, which was enough staffing for up to six patients. Dean says the hospital will add more staff in the nursing department as it builds a census. The specialty hospital will contract with Good Shepherd Rehab Hospital to provide certain services and rehab staff as needed. "So we can flex our staff as needed, and between the two hospitals, we hope to develop a flex nursing pool that we can use back and forth," Dean says.