The world turned upside down - Integrated Health Services at Orange Hills

Nursing Homes, April, 1997 by William Hibbard

How one facility transformed itself for the future

When Integrated Health Services purchased Orange Hills in 1992, ours was a fairly typical 145-bed long-term care facility. We provided a good range of chronic care services, and for our Medicare cases, we tried to maximize Medicare reimbursement. These are the rules by which most long-term care facilities still play.

We don't any longer. We are now a facility that provides several levels of sub-acute care, as well as traditional chronic care. Our pulmonary care, medical, rehabilitation and long-term care units are roughly the same size. We are highly managed care-oriented. In fact, our average daily census consists predominantly of high-acuity patients referred to us by Kaiser and several other HMOs, as well as Medi-Cal Subacute, all of which reimburse us under fixed per diems. Our Medicare cost-reimbursed census, on the other hand, is down to a relative handful.

To say that this has had a revolutionary impact on our way of doing business is to put it mildly. Repercussions have been felt throughout our entire financial management and staff structure. We are still working them out, but have already made many major changes along the way.

Within two months of the debut of our subacute services, our monthly clinical laboratory billings went from $2,000 to $28,000. Our monthly X-ray billings went from $3,000 to $15,000. Our monthly pharmacy billings went from about $18,000 to $135,000. All of this is supported largely by fixed per diems ranging from $250 to $350. In short, there is good reason for having to change our operations.

A case in point: Under Medicare we typically received a 30-day supply of medications for a particular patient. With our lengths-of-stay dropping to an average of five or six days under managed care, we were destroying at least 20 days worth of medications per patient (required by state law). Meanwhile, the sheer quantity and variety of medications jumped dramatically, and our consultant pharmacist became an increasingly regular visitor. From dropping by with a small lunch bag full of medications every other day, he began appearing twice a day with a grocery bag-sized container, and then five or six times a day with carts full of them. Many of these drugs - particularly antibiotics, morphine and other narcotics-ended up being destroyed, and that endangered our bottom line.

We told our pharmacist that, since we were discounting 70% off charges on average for all HMO and Medi-Cal Sub-acute patients, we would apply the same discount to the pharmacy for a negotiated per diem rate multiplied by the number of managed care days incurred in a given month, regardless of actual utilization or cost. For IVs we would pay a per diem based on the days used by the patient; with orals we would maintain a seven-day supply. With these measures, our pharmacy bill dropped to about $60,000 a month.

We negotiated a similarly money saving per diem rate for our clinical laboratory services as applied to managed care patients.

With rehabilitation, we discontinued our contract operations and brought all staffing in-house. With managed care paying rehab rates in the mid-$200 range, contract therapy in the $50-120 charge per hour would eat up our per diem rate very quickly. Similarly, with MediCal paying $260 a day for ventilator patients and $225 for tracheostomy patients, we could not afford contract respiratory services and brought those in-house as well.

In short, thanks to managed care, we had to manage down our ancillaries. There were no more cost pass-throughs to Medicare or other maximization techniques - in fact, our financial incentives were diametrically opposed. In my view, you can't try to emphasize both approaches. Once your managed care census has hit at about 25% of your total, you have to think very seriously about converting your operations in general to a more cost-efficient model. And you have to commit to this all the way.

This had profound implications for our staffing structure. In short order, we had gone from admitting 15 residents a month to 130 patients a month. We tried all kinds of staffing to adjust, including acute care-oriented people, long-term care-oriented people and everything in between. We concluded that what we needed was a "hybrid" person - a person less "tainted" toward traditional roles or playing the Medicare maximization game and more oriented to our more acute-oriented, high-pressure needs. Once we identified such people, we had to train them, cross-train them and redefine their roles.

We created the key position of Resource Manager, and now have five of them - a nurse, a social worker, a former activities assistant, a former ombudsman and a former receptionist. Widely varying backgrounds, to be sure, but these individuals displayed two key qualifications: the intellect and willingness to be trained to perform a job involving multiple functions.

Our Resource Managers "own the patient" in their respective units from admission to discharge; they can take an inquiry, do the admissions paperwork, perform a psychosocial assessment, do the social work and case management documentation, and complete the discharge planning. In the process, we eliminated duplication of effort for these processes and reduced a staff of eight to five, saving $125,000 a year in salaries.