With their costs under fire, long-term care hospitals push back, pivot

On a recent weekday at Gaylord Specialty Healthcare in Wallingford, over a dozen patients were working with therapists in a sunlit room, strengthening their bodies with cutting-edge equipment that supported their weight as they walked.

Gaylord's patients, who've suffered spinal cord and brain injuries, strokes, infections and other devastating ailments, are fighting a long, slow battle to return their lives to normalcy.

Meanwhile, Gaylord itself — one of only two long-term acute-care hospitals in Connecticut, and a declining number nationwide — is fighting for its own future.

Some economists say Gaylord and other niche hospitals like it, which provide weeks or even months of care for patients after they've been discharged from an intensive care unit or emergency room, are too costly to the healthcare system and ought to be phased out from Medicare, a crucial payer that doled out $4.5 billion to long-term care hospitals in 2017.

Instead, some economists contend patients would be served just as well, and at far less a cost, if they stayed in a regular hospital longer and then transferred to a lower-cost setting, such as a skilled-nursing facility.

Federal officials and private health insurers, too, are raising cost concerns about the industry, and beginning to restrict patient access to long-term care facilities, also known as LTCHs (pronounced “el-tack”).

Unsurprisingly, the industry has been fighting back, issuing its own research to rebut critics.

Gaylord Specialty Healthcare in particular has been on the front lines of the defense, lending its voice to the debate nationally.

“LTCHs are important to a healthier, safer healthcare system and are an important resource for our nation's sickest patients,” said George Kyriacou, Gaylord's former CEO, who remains in an advisory role at the hospital. “That's where we achieve results that can't be duplicated.”

Sonja LaBarbera, who succeeded Kyriacou as Gaylord CEO earlier this year, said Medicare is 50 percent of her hospital's business and the loss of that funding would be “devastating” and “catastrophic.”

She doesn't think it's likely Medicare and Congress will wipe out LTCHs, but the pressure has grown in the past few years, putting the broader industry on its heels.

Both Gaylord and its Connecticut peer, the Hospital for Special Care in New Britain, say they are in relatively good financial health and have been strategic about planning for the future, but recent headwinds have them concerned.

Competition and cost

There are a variety of facilities and settings available to patients when they leave the hospital but need additional care.

Across the U.S. post-hospital care system, skilled-nursing facilities hold the largest market share, receiving 47 percent of patient discharges in 2017, according to Medicare. In Connecticut, skilled-nursing facilities are also the dominant player, with operators including Genesis HealthCare, Athena Health Care Systems and others. The second most common setting for discharged patients in need of further care was home health, at 32 percent. Meanwhile, LTCHs received just 3 percent of discharged patients in 2017, with the remainder going to hospice or inpatient rehab facilities.

Because LTCHs provide more complex medical care than their competitors, their costs are also higher. For example, Medicare paid an average of $38,000 per LTCH inpatient case in 2017, while skilled-nursing facilities received approximately $18,000, according to the Medicare Payment Advisory Commission.

That cost differential is at the crux of the ongoing debate.

In August, a team of economists from MIT, Stanford and the University of Chicago, after analyzing 16 years of Medicare data, concluded that LTCHs' high costs simply haven't justified their patient outcomes, and that many long-term care hospital patients could be served just as well in a skilled-nursing facility.

“Patients discharged to an LTCH owe more money out of pocket, and we find no evidence that they spend less time in institutional care or have better mortality outcomes as a result,” read the study titled, “A Case Study in Waste,” published by the National Bureau of Economic Research (NBER).

Therefore LTCHs, despite being a small piece of the overall healthcare system, could represent a pocket of financial waste, the study said.

“Taken together, our findings indicate that Medicare could save $4.6 billion per year with no harm to patients by not allowing for discharges to LTCHs,” the authors wrote.

Not so fast, Gaylord's Kyriacou and LaBarbera said.

They don't dispute that the services they provide cost more, but they argue that the NBER authors did not account for the fact that their patients are much sicker on average compared to patients at skilled-nursing facilities.

“That was our biggest beef,” LaBarbera said. “They made no adjustments for [how sick our patients are].”

Kyriacou helped lead a substantial rebuttal to that national report, releasing a study two months later he had worked on for about four years.

That analysis, he said, shows that Medicare patients with the most severe injuries and ailments — a group that accounts for nearly 60 percent of LTCH patients nationwide — have better outcomes at long-term care hospitals compared to skilled-nursing facilities and other competing providers.

For example, hospital readmission rates are 15 percentage points lower for the sickest patients who go to a LTCH vs. a skilled-nursing home, according to the study. The average amount of time it takes for a patient to be readmitted to a regular hospital is also longer for LTCH patients, and their emergency room use is also less frequent, the report concluded.

The takeaway, said Kyriacou, is that LTCHs, while more costly, cannot be fairly compared to skilled nursing, and are saving the healthcare system money over time.

How does it all net out? He said that's something that needs further study.

Kyriacou began work on his study because he said the long-term care hospital industry had not done a good job proving its worth to regulators and policymakers.

“The reason LTCHs have declined across the country is because, as an industry, we did a terrible job in being able to present concrete information,” he said.

Lynn Ricci, CEO at Hospital for Special Care, spent more than 20 years in nursing-home management. She said those facilities have become increasingly skilled in the level of care they can provide, but not so much that they could replace what LTCHs offer.

“They have skilled up to meet some of the needs of the population, but they will never have 24/7 physician coverage,” Ricci said.

Amy Finekelstein, an MIT economics professor and co-author of the NBER study, admits that her group did not measure every possible benefit of LTCHs, and noted that the paper stated the appropriate caveats.

She and her colleagues plan to continue their analysis of LTCHs, but she contends that the onus should be on the long-term care facilities to prove their value.

A cresting wave

Long-term care hospitals have issues beyond just an attack by economists.

Congress and Medicare have tried to rein in LTCH costs a number of times since the 1990s, altering payment schemes and even enacting a moratorium on new facilities.

One of the more recent changes — which narrowed the criteria that make a patient eligible for LTCH reimbursement — had a big impact on industry profit margins. Since that change started to take effect in 2016, more than 40 LTCHs have closed their doors. There are currently about 400 still in existence.

Medicare overseers are also weighing LTCHs' future role in the healthcare system, with recommendations due to Congress in June.

Besides traditional Medicare, Medicare Advantage plans are of equal concern.

Both Gaylord and Hospital for Special Care say private insurers that operate those policies, which are private-run alternatives to traditional Medicare, often offering dental and vision coverage as well as other perks, are increasingly denying patient transfers from an area hospital to one of their facilities.

LTCHs and patients often appeal those pre-authorization denials, which requires more staff resources and can take a few days. While some appeals are successful, the net impact is a loss of some inpatient volume.

“It's definitely hurt,” said Kyriacou.

Because Medicare Advantage is growing steadily, the hospitals say patient denials will likely only accelerate.

“I do think the trend we're seeing in Medicare Advantage is one of our primary financial concerns going forward,” LaBarbera said.

“That product is just increasing every year, and is going to continue to increase,” Ricci echoed. “We as an industry know we have to learn how to manage that, it's not going away.”

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