How Erickson Living is transitioning to value-based reimbursement

How can healthcare providers navigate through the transition from volume-based to value-based reimbursement? For Erickson Living — a large provider of independent living, assisted living, memory care, and skilled nursing facilities — the answer lies in the intersection between quality and value.

“We look for where there is financial opportunity associated with what we do best,” says Matthew Narrett, Erickson’s chief medical officer. “Our approach is to deliver value for price paid to all stakeholders — from the residents we serve to our not-for-profit communities to Medicare and all the rest — while still holding true to our mission of delivering the highest in quality in an integrated way.”

What Erickson does best is deliver integrated health and wellness for seniors. Thanks to healthcare reform, the senior care provider has numerous opportunities to realize financial benefits from investments it made over the past three decades.

Erickson Health: Innovative interdisciplinary care team

One area of investment that is paying dividends for all stakeholders is Erickson’s groundbreaking onsite medical group, Erickson Health, which has evolved over the past 25 years into a comprehensive interdisciplinary care team.

Today, Erickson Health offers its residents onsite access to primary care physicians, as well as rehabilitation, mental health, social workers, certified home care, and other ancillary providers across the continuum.

“We grew Erickson Health driven by quality and driven by our mission, never driven by the bottom line,” Narrett says. “Real estate development has been the financial engine for our company through the years.”

However, the medical group is performing better financially, thanks in part to a number of new Medicare codes that reimburse providers for quality care and care management. For example, a new chronic care management code pays $42 when a provider spends 20 minutes or more in a month coordinating care for a beneficiary. Another code reimburses providers for transition care management — something that Erickson has historically performed unreimbursed.

For senior living facilities considering offering onsite medical care, Narrett recommends a threshold of at least 300 residents. He notes that about 85 percent of Erickson’s residents nationwide take advantage of its onsite physicians.

Senior-care organizations should also anticipate challenges recruiting the right medical staff, Narrett adds. “We are constantly recruiting physicians,” he says. “There will never be enough geriatric physicians. You better hope you can find internists, family practitioners, and osteopaths that have an interest in taking care of seniors.”

Erickson advantage: A financial benefit for clinical improvements

Providing integrated healthcare has resulted in clear clinical benefits. Erickson routinely sees readmission rates that are roughly half the rates for Medicare beneficiaries nationally.

As they watched these trends, Erickson’s leaders began to see the potential to benefit financially from the improved health and wellness of its residents. After a few early experiments with at-risk contracts, Erickson created its own Medicare Advantage (MA) plan in partnership with United Healthcare in 2005.

Erickson’s stable population and its ability to manage residents’ risk factors converged to create the ideal situation for assuming financial risk. Less than 1 percent of Erickson residents leave its communities for reasons other than death. “We have a very sticky population,” Narrett says. “That probably emboldened us, because we knew we didn’t have a shifting population.”

Erickson still is the only CCRC in the country that offers its own Medicare Advantage plan, Narrett says. Operating an insurance company is “not for the faint-hearted,” he warns. However, for many senior living and post-acute care providers, he says, it works out to be a better financial deal than participation in an accountable care organization.

Senior living providers considering rolling out their own MA plan should do so only if they have a high concentration of residents in one state, since insurance providers need a license and significant financial reserves for each state in which they operate.

An experiment in capitation

With just 21 percent of its residents participating in Erickson Advantage, the vast majority of Erickson Living residents are members of traditional Medicare or another fee-for-service health plan.

Anticipating the value-based future of healthcare, Erickson is creating its own version of capitation to prepare its not-for-profit communities. Erickson established target costs for each community based on that community’s prior experience. And unlike Medicare shared savings plans, which take 1 to 3 percent right off the top, Erickson’s capitation is set at 100 percent of the base year’s utilization.

The goal is to get those communities used to delivering services within a fixed amount. The real-life experiment is the best way to educate, Narrett says. “People don’t understand capitation or bundled payment in one conversation.”

In fact, it took nearly two years for the healthcare providers at Erickson’s communities to be successful with capitation. After rolling out the initiative in early 2013, utilization spiked to 117 percent of the capitated fees. But by November 2014, it had dropped to 97 percent of capitation.

Given the amount of education that has been required, Narrett urges providers to start exploring value-based reimbursement options now. “If we had waited until bundled payments or alternative payments rolled out universally, we would have been unsuccessful,” he says. “It’s very hard to flip the switch.”