Life Sciences

The business of LTC: LTC affects product selection, site-of-care decisions

Medicare & Reimbursement Advisor Weekly, April 29, 2009

Various LTC-setting billing policies can affect what patients take for medications as they move into other care settings, such as rehab, home health, hospitals, or when they move back into the community.

The business of running a nursing home is complicated, but it is so crucial to patients. Payment policies affect how nursing homes interact with your payer customers (like an Aetna), as well as community physicians and hospitals.

These issues are shared in conversation with Lynn Veith, RN, administrator of care coordination at McLean Nursing Home, an independent continuum of LTC in Connecticut.


In a nursing home, a patient’s care is based on a consolidated billing structure that pays the home a “per diem” for the first 100 days of his or her stay, and it’s all-inclusive. This fact affects how a home views clinical decisions, particularly for independent facilities that are more likely to take a financial hit from a high-cost regimen versus a chain (e.g., Manor Care) that may be able handle one facility that is in the black.


The per diem is set based on checkpoints at the 5th, 14th, 30th, 60th, and 90th day of a resident’s stay. A different rate is set at each checkpoint based on a complicated system: facilities enter data based on certain resource utilization groups (RUG) and these RUGs, tracked into the MDS, ultimately determine the rate per resident for the period. Each county is paid differently, and payment may vary based on utilization during the specific period, so McLean could be paid like the following:


Every day and week, Veith reviews each patient, in terms of what the nursing home is receiving in its Medicare Part A per diem and what it’s paying out in therapy, medications, and other services. “If we receive a patient, and the prescribing physician has ordered Neupogen, for example, for a chemo regimen, we must, by law, follow that order, even though we have to pay for the chemo,” she says.

Some homes will try to coordinate discharges, if appropriate, so a patient would receive an IV or medication at home. For example, consider a patient who recently had hip surgery and was projected to be at McLean for 14 days. The Neupogen was due to be administered on day 10 and, because McLean does not administer the regimen, the facility would be responsible for the costs to transport the patient to the oncologist, the drug, and the return trip to the nursing home, Veith says. “So sometimes, we will call the practitioners to see if the patient can adjust the medication schedule, only if appropriate,” to shift costs to other facilities, she says.

Given the mission of LTC facilities and state law, this is difficult. An assisted living resident at McLean recently needed hyperbaric oxygen, ordered by the resident’s surgeon. “We couldn’t not admit her back,” Veith says, and the procedure cost McLean $22,000. If Medicare feels you are denying admission based on payment, that’s not allowed. The only way to manage it is is to have clear admission criteria. For example, McLean won’t administer IVs or palliative care, as is written in a policy.


Once per quarter, McLean has a medical director meeting with Omnicare and they review formulary, actual, and potential savings. McLean, along with most nursing home facilities, has a Part A formulary, all but necessary to manage the per diem costs. Some drugs on the formulary—created by Omnicare and the medical directors—have prior authorizations (PA). Adopting a new drug for a patient is not so simple, even if the drug is just as or more effective, because the facility has to look closely at costs. If the drug might help the patient improve activities of daily living versus an existing formulary product and to make occupational therapy sessions as scheduled, there are some financial benefits for switching to the new drug, says Veith.

Clinical decisions about medications can often be put into buckets of short- and long-stay patients and their medication regimens. Unexpected costs also arise, and although they may not affect medications directly, they do affect how a home would view a patient’s overall stay, and possibly affect medication decisions. For example, McLean recently dealt with a woman who had a car accident and needed arm and leg surgeries. She had an orthopedic surgeon work on her leg, and a different doctor for her arm. Each trip to the hospital and doctor offices for consultations and surgeries cost McLean about $250 because Medicare won’t pay for transportation, unless the patient is on a stretcher. The hospital did not have to pick up those costs.


McLean’s formulary is mostly open. For new drugs, the home will conduct clinical comparisons and product cost comparisons. “We would have to write a new policy to add it to the formulary, so there has to be a good case for it,” Veith says. In some cases, McLean has negotiated a deal directly with the managed care plan, particularly for higher-cost medications, such as those that may involve a PA. “We would agree to use the medication if the plan can agree to paying us a higher rate,” she says.


MRAW has conducted a study on nonmedical switching in LTC. (Results are available in the November 2008 American Journal of Managed Care.) Veith, who assisted with this project, says switching is often difficult, not just if the resident is tolerating a drug, but also because of the continuum-of-care issues that result.

Often, a patient may go from the community where he or she is taking one drug; then to the hospital, where the facility’s formulary dictates a switch to a generic; and then to the nursing home. “This can lead to errors and to confusion and to adherence problems. For short-stay patients, especially, we often will follow the hospital’s formulary decision to bring back some consistency,” says Veith.