Harmony Healthcare International (HHI) Blog

[ICYMI] Therapy Contract Negotiation for PDPM

Kris Quote Blog SNF


Compliance • Audits/Analysis • Reimbursement/Regulatory/Rehab • Education/Efficiency • Survey


With the advent of PDPM (Patient Driven Payment Model) October 1st, 2019, two of the hottest questions are:

  • Should a Skilled Nursing Facility (SNF) outsource therapy services?
  • What is the best fee structure between the Skilled Nursing Facility (SNF) and therapy contractor?

Approximately 50% of Skilled Nursing Facilities (SNFs) use outside vendors to perform Physical, Occupational and Speech Therapy services for the Skilled Nursing Facility (SNF)  patient population inclusive of all payer sources (Medicare Part A, Medicare Part B, Managed Care, Managed Medicare, Medicaid, Private and ACOs).

The utilization of a therapy service vendor offers the Skilled Nursing Facility (SNF) many benefits (staffing, program development, oversight, etc.) to name a few and can be quite appealing for the Skilled Nursing Facility (SNF).  One of the most common reasons noted for using a contract therapy vendor is “it’s one less thing I need to worry about.” 

Today’s blog focuses primarily on the second hottest question regarding Therapy Contract Negotiation and the Top 11 Things You Need to Know for PDPM:

  1. Compliance Risk

    It cannot be reinforced enough that the Skilled Nursing Facility (SNF) owns the risk, regardless of whether the therapy department is in-house or contract labor.

    Utilizing a therapy provider may lessen the perceived stress of overseeing the therapy department logistics, however, it does not minimize the Skilled Nursing Facility (SNF) risk.  Remember, all the therapy services are being billed through the Skilled Nursing Facility (SNF) provider number, hence, the submission of a clean claim is the burden of the provider…. not the therapy vendor.
  2. Indemnification of Charges

    Do not be fooled with “indemnification” clauses that evoke a false sense of security.  These statements proclaim that denied claims will be guaranteed/reimbursed by the therapy company to the Skilled Nursing Facility (SNF).

    • If the claim is deemed a False Claim, indemnification is not permitted by the government.
    • Indemnification typically applies to only the “therapy portion” of the lost revenue.
  3. Align Incentives (Care and Cost)

    Choose a therapy provider that offers a fee schedule that is in alignment with providing optimal care.  In other words, be sure that the contractual arrangement does not contradict the provision of therapy due to costs.

    For example, paying a per day RUG level (or PT/OT/ST Component) incentivizes the therapy provider to give less therapy.

    Today, most Skilled Nursing Facilities (SNF) wants to be sure that there is no incentive for the quality of care to be jeopardized by financial motivators.  utilizing contract therapy pay $0.97 – $1.30 per minute for Medicare Part A patients, with the average fees at $1.00 per minute. This affords an inherent alignment as the minutes have a direct relationship to the level of reimbursement.

    Under PDPM, this arrangement may not make sense.  The Skilled Nursing Facility (SNF) wants to be sure that there is no incentive for the quality of care to be jeopardized by financial motivators.

    Under PDPM, if the Skilled Nursing Facility (SNF) wants to be sure that there is no incentive for the quality of care to be jeopardi
    zed by financial motivators.  pays the therapy vendor by the RUG level or Therapy Component, there needs to be oversight that the services were rendered. 

    Kris Mastrangelo Learn From LTPAC Industry Leaders
  4. Rates by the Hour

    Consider obtaining a fee structure that is an hourly fee. This ensures that the Skilled Nursing Facility (SNF)is only paying for the hours associated with efficiency for patient care rendered.  (See #8 below.)
  5. Rates by Discipline and Degree

    Consider negotiating an hourly rate that is commensurate with the skill level of the healthcare professional. In other words, the Registered Therapist, Therapy Assistant, and Aide hours will be varied.  The higher the skill, the higher the rate.  This prevents paying Registered Clinician rates for Aide Level services.
  6. Rates by Mode of Therapy

    Like the above rates by discipline and degree, consider obtaining an hourly fee by mode of therapy:
    • Evaluations
    • Individual
    • Groups
    • Concurrent
    This prevents paying individual rates for group services.
  7. Rates by Payor

    Consider negotiating the same fee structure regardless of insurance payor source.

    Omnibus Reconciliation Act (OBRA) ’87 regulations require facilities to provide services to meet the highest practicable physical, medical and psychological well-being” of every resident regardless of payor source.

    The medical regimen must be co
    nsistent with the resident's assessment (performed according to the uniform instrument known as the Minimum Data Set MDS) and Interdisciplinary Care Plan.

    Any decline in the resident's physical, mental or psychological well-being must be demonstrably unavoidable. (483.25).
  8. Productivity

    Consider obtaining an hourly fee with a productivity standard. This ensures that you are only paying for the hours rendered in an efficient manner. An acceptable benchmark is 75%. Be sure to define what is considered productive versus non productive time and that payroll reports and therapy software matches.  Discrepancies are a red flag and may result in significant compliance issues.
  9. Non-Compete

    Give yourself flexibility with the unexpected reimbursement changes. Do not lock in to a payout for therapists.  Structure a deal that allows you to have the ability to change the model (i.e., in-house) without incurring extensive buyout costs.
  10. Medicare Part B Fees and MPPR Impact

    An area that requires heightened attention is the fee structure between the Skilled Nursing Facility (SNF) and Therapy Contractor specifically for Medicare Part B.  This has been even more critical since the inception of the Multiple Procedure Payment Reduction (MPPR) back in April of 2013.

    In general, a fee structure of 75% of Fee schedule to the therapy contractor means that the Skilled Nursing Facility (SNF) is losing money. At 75%, it is estimated that it costs the Skilled Nursing Facility (SNF) approximately 8% of total charges.

    For example, if the Medicare Part B charges are $100,000 for the month, the SNF pays the contract provider 75% or $75,000.  The Skilled Nursing Facility (SNF) thinks they are pocketing $25,000 of the charges.  In fact, not only is the SNFs not receiving $25,000, its costing approximately $8,000 (8% of the charges) and the labor related to competing the Medicare Part B Billing.

    Let’s review the Multiple Procedure Payment Reduction (MPPR)

    Effective April 1, 2013, The Centers for Medicare and Medicaid Services (CMS) implemented a process of reducing payment on multiple procedures rendered during the same visit.

    This applies to all therapy procedures rendered in the same day!

    For example, if Occupational Therapy, Speech Therapy and Physical Therapy all give treatments on Monday, The Centers for Medicare and Medicaid Services (CMS) pays the highest dollar amount for one procedure and reduces all subsequent treatments (procedures) by 50% of the PE (Practice Expense) component for all disciplines.  And this highest dollar amount includes the comparison between all therapy services i.e., Physical Therapy, Occupational Therapy and Speech Therapy. Hence, the highest payment is not discipline specific.

    Your region specifics are calculated by the Geographic Pricing Index (GPI) and the Relative Value Unit (RVU) of three components Work Expense, Practice Expense and Malpractice Expense.  These are then multiplied by the local conversion factor.

    Any reduction of the Practice Expense is a game changer because it essentially represents the lion share of reimbursement.

    The result is the Skilled Nursing Facility (SNF) loses: 

    • 8% due to Multiple Procedure Payment Reduction (MPPR)
    • 25% co-pay that is typically is bad debt.

    This totals a 33% reduction in reimbursement before the Skilled Nursing Facility (SNF) begins to negotiate with the therapy contractor. 

    Hence, 67% is the most the Skilled Nursing Facility (SNF) should be paying for Part B services if they want to break even.

  11. Best Decision-Making considers all variables

    Do not make therapy vendor contractual decisions based solely on expenses.  Weigh the impact of all the variables including revenue.    Be sure to see the forest through the trees. The total expense for therapy may be the same as owning the therapy staff but the other aspects of the fees structure may offset this perceived savings.

    For example, a provider may think that converting from in-house to contract is a win because of the cost savings for the therapy labor.  When in fact, the net savings is a massive revenue decrease and less labor for patient care.

    A real-life example is a provider that made the leap from in-house to contract therapy solely because of a 500K decrease in labor expense.  When in fact the Medicare Part B fees at 75% of the CPT Code cost the facility $500K.  This is not a wash. There are financial and clinical ramifications of this decision including:

      • Less labor

      • Less revenue

      • Less potential revenue

There may be other reasons for the conversion that prompted the deal.  However, it is super important to lay out all the variables for the team to make the best decision. 

“Today’s Decisions are tomorrow’s Successes or Failures.”

Make the right decision and call
Harmony Healthcare International (HHI) today at 1.800.530.4413

Harmony Healthcare International (HHI) is available to assist with any questions or concerns that you may have.  You can contact us by clicking here.  Looking to train your staff?  Join us in person at one of our our upcoming Competency/Certification Courses.  Click here to see the dates and locations. 

harmony20 October 29-30 2020 Encore Boston Harbor

Topics: PDPM

Kris Mastrangelo, OTR/L, LNHA, MBA


Kris Mastrangelo, OTR/L, LNHA, MBA

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