Please see below for a full transcript of this episode:

Post-acute care relationships with hospitals: Health systems are aggressively entering into joint venture or organization owned arrangements to tackle hospital overcrowding.

Welcome to Redefining Health Law brought to you by the law firm of Parker, Hudson, Rainer & Dobbs, LLP, a boutique law firm with offices in Atlanta, Chicago, and Tallahassee. Your host for this podcast is Tara Ravi, a healthcare partner with prior work experience in both clinical research and patient care delivery.

She is an adjunct professor at the Emory School of Law where she teaches corporate health law. Tara leverages her past work experience in the healthcare industry to advise healthcare organizations facing growth related challenges. Although Tara is a partner in the law firm of Parker Hudson, the views expressed in this podcast are Tara's personal views and not the views of the firm or any of the firm's clients and are not intended to be legal advice. We hope you enjoy this podcast.

Welcome to the second episode in our three- part series addressing healthcare delivery challenges in the post COVID era. Today I will focus on the role of post-acute care providers and hospital relationships with post-acute care providers. These relationships are aimed at alleviating hospital overcrowding by transferring patients out of short-term acute care hospitals and into facilities better equipped to address the patient's specific needs. Keep in mind, today's episode, just like the first episode, will be a high-level discussion on these interactions with a focus on changes in governmental policy, reimbursement, population health changes, and actions providers have taken before, during, and after the COVID pandemic.

Let's begin with a short summary of post-acute care providers. Post-acute care encompasses various types of healthcare services that are provided to individuals after they have been discharged from a hospital. These services are designed to support patients as they transition from acute care settings to a lower level of care.

Post-acute care is typically delivered in various settings, such as inpatient rehabilitation facilities, skilled nursing facilities, home healthcare, and long-term acute care hospitals. The specific setting and level of care depend on the individual's needs and medical condition. Most post-acute care providers that we have interacted with have expressed continued frustration with the reimbursement and sometimes arbitrary oversight by Medicare, Medicare Advantage plans and Medicaid in the post-acute care space.

This is alarming considering the lack of bed space within post-acute care providers. In addition to issues of insufficient reimbursement, specifically Medicaid is not enough to cover many services. There are also increased expenses as well as inconsistent claims payments and recoupments. Add to that the price of compliance.

Many post-acute care providers are struggling, especially the skilled nursing facilities (SNF). Adding to difficulties of hospitals discharging patients, if a certain private payer does not have a relationship with the post-acute care provider, then a longer delay will occur to get the patient out of the hospital and transferred.

As you can imagine, reimbursement is one of the top three issues in post-acute care, along with increasing acuity levels of the patients, especially in post COVID times, and finally staffing mandates by the states and federal government combined with workforce shortages. Recently, CMS issued a minimum staffing mandate setting out requirements for certain roles.

There are now three components. There is an overall standard for 3.48 nursing hours per patient day, and there's also a requirement for an RN in every building, 24/7, every shift. Post-acute care providers have described the rules as impossible to implement and that the workforce is not available to meet these new requirements.

We will continue to follow this issue in more detailed episodes coming up in the next couple months. Adding to the staffing crisis are attempts to limit visitations by facilities, public perceptions and high-profile news, family use of granny cams and nest cameras to talk to staff members. And the general financial uncertainty of a facility and whether it would unexpectedly shut down.

With all of these troubles, why the sudden interest in post-acute care providers by hospitals? Well, I wouldn't characterize the interest as sudden. Beginning in 2012, under programs set up by the Affordable Care Act, the federal government cut Medicare payments to hospitals that have high rates of readmissions, as much as 3 percent for each patient.

Hospitals located in rural areas or economically disadvantaged areas typically were most likely to receive these penalties, but also more likely to receive the maximum penalty of 3 percent. Many times, readmissions were the cause of poor access to post-acute care providers and or the lack of substantive relationships with these providers.

Hospitals quickly engaged in coordinated care efforts to alleviate the new CMS readmission penalty. Hospitals and health system providers are aggressively beginning to take things into their own hands. As a result, health systems are entering into the joint venture relationships or other contractual relationships with post-acute care providers and or building their own facilities to transfer acute care patients out of the hospital and into the appropriate care facility.

Despite all the reimbursement challenges I just described, post-acute care providers have also become much less fragmented and disconnected today than they were a few decades ago. Mergers and acquisitions and aggressive new developments have resulted in there being just a few large providers in each category.

Before, new specialty post-acute care facilities were often built without a direct affiliation or partnership with their local regional acute care counterparts. The mentality has shifted towards pursuing partnerships and alignments with hospitals and health systems. This comes at a time with fewer market opportunities. These partnerships, often between for profit and non-profit providers, involving both equity and ownership, can be complex.

Culture is often the first hurdle, and after that, you get into issues like tax structure, governance, branding, fair market value, compliance, antitrust, clinical integration, capital investment, lease liability, employees and provider contracting, and other considerations. Joint ventures can be complex, expensive, and they take a lot of time while construction costs steadily accelerate.

But, when possible, joint ventures are an excellent strategy for alleviating hospital overcrowding, improving outcomes in patient care, and patient access to vital services. As post-acute care providers continue to merge and consolidate, joint venture owners, partners can also benefit to negotiate non competes or exclusivity agreements as it relates to relationships with competitor health systems.

If the parties address the most important negotiation issues on the front end, the main regulatory hurdle, the federal anti-kickback statute, and the potential for suspect joint ventures can be mitigated. Parties will also have to address any state certificate of need laws and Medicare and Medicaid reimbursement options, if any, for provider-based facilities.

The alternatives to joint ventures include building more acute care beds, entering into contractual bed reservation arrangements, increased focus on chronic care management in the community, which our next episode and final one in this series will be dedicated to. A quick minute to talk about bed reservation agreements.

We see this for hospitals contracted with skilled nursing facilities. In these arrangements, a hospital reserves a bed in a SNF so that there is a guaranteed bed for a patient, which these days is typically a difficult discharge patient who has special needs above those that are typically reimbursed to the SNF in their per diem payment.

The concept of a bed reservation agreement was initially addressed in the 2000 OIG Compliance Guidance addressing SNF compliance programs, and then subsequently in the 2008 Compliance Guidance in which the OIG provides the following examples of illegal arrangements. Payments that result in double dipping by the nursing facility, such as sham payments for beds that are actually occupied or for which the facility is otherwise receiving reimbursement.

Payments for more beds than the hospital legitimately needs, and excessive payments. Payments that exceed the nursing facility's actual cost of holding a bed or the actual revenues a facility reasonably stands to forfeit by holding a bed given the facility's occupancy rate and patient acuity mix. The prior 2000 OIG guidance does seem to open the door for potentially compliant bed reservation agreements.

We will be dedicating an entire episode to address the growing issue of hospitals entering into bed reservation agreements, as we have been working through these relationships in which a hospital is essentially begging a facility to take a patient an issue not contemplated by the OIG over a decade ago.

That concludes our summary of hospital relationships with post-acute care providers. This is a world where up is down and down is up. While providers are going out of business and suffering reimbursement changes, consolidation and joint ventures thrive, building out stronger relationships, or at least marriages of necessity.

The issue remains, which is patient acuity is rising, patient volume is rising, and bed space is limited or highly coveted. We hope you enjoyed the second episode, we will complete the series with a discussion on chronic care management. Thanks again for listening to Redefining Health Law.

If you haven't already, I invite you to subscribe on your favorite podcast player so you won't miss an episode, and of course, if you have any topics you would like to hear discussed, please don't hesitate to email us at

We would love to hear from you. Thank you for listening. Until next time, I'm Tara Ravi.

Subscribe to our podcast and have new episodes delivered directly to you as they become available.