First con­sol­i­da­tion, then co­or­di­na­tion

LTAC op­er­a­tors us­ing ac­qui­si­tions to ex­pand their care con­tin­u­ums

Modern Healthcare - - Long-term Care -

For the long-term acute-care hos­pi­tal seg­ment, the days of con­sol­i­da­tion may be near­ing an end as post-acute providers take on the am­bi­tious—and un­cer­tain—task of adopt­ing the new, fa­vored model of de­liv­ery: co­or­di­nated care.

Proof of this came in May when Louisville, Ky.-based Kin­dred Health­care share­hold­ers agreed to buy Re­hab­Care Group for $1.3 bil­lion in a deal that not only added to Kin­dred’s LTAC hos­pi­tal busi­ness, but also ex­panded the com­pany’s reach in the full post-acute con­tin­uum through added re­ha­bil­i­ta­tive ser­vices.

“The com­bi­na­tion of Kin­dred and Re­hab­Care will pro­vide more op­por­tu­ni­ties for our pa­tients, em­ploy­ees and other stake­hold­ers,” Kin­dred Pres­i­dent and CEO Paul Diaz said in a state­ment to Modern Health­care last week.

“To­gether, we will con­tinue to de­liver su­pe­rior clin­i­cal out­comes and ex­pand our ser­vice of­fer­ings to bet­ter tran­si­tion pa­tients home with a full and ef­fi­cient re­cov­ery,” he said. “The ex­pan­sion of our size and scale and the op­por­tu­ni­ties to in­te­grate Re­hab­Care’s LTAC hos­pi­tals, IRFs (in­pa­tient re­ha­bil­i­ta­tion fa­cil­i­ties) and re­ha­bil­i­ta­tion ther­apy con­tract busi­ness with our op­er­a­tions will cre­ate a stronger com­pany that is bet­ter po­si­tioned to com­pete in an evolv­ing and more in­te­grated health­care environment.”

Se­lect Med­i­cal Hold­ings Corp., which pur­chased LTAC hos­pi­tal provider Re­gency Hos­pi­tal Co. in 2010, has since con­cen­trated on grow- ing its hos­pi­tal busi­ness through part­ner­ships with Bay­lor Health Care Sys­tem in Dal­las as well as the Penn State Her­shey (Pa.) health sys­tem.

“The wave of merg­ers is less about mar­ket lever­age and much more about reg­u­la­tory uncer­tainty and the lack of other op­tions to pur­sue growth,” says Wil­liam Wal­ters, CEO of the Acute Long Term Care Hos­pi­tal As­so­ci­a­tion. “Post-acute providers are re­ally try­ing to po­si­tion them­selves for the fu­ture: whether it’s ACOs (ac­count­able care or­ga­ni­za­tions), bun­dled pay­ments or site-neu­tral pay­ments, all of those sce­nar­ios en­vi­sion post-acute providers per­form­ing a wider range of ser­vices than the cur­rent si­los they may be in.”

Wal­ters’ com­ment about a lack of other op­tions for growth refers pri­mar­ily to a fed­eral mora­to­rium on new LTAC hos­pi­tals that will ex­pire next year. Any new LTAC hos­pi­tals dur­ing this time must have been planned for op­er­a­tion be­fore the mora­to­rium kicked in.

“I think what has ac­cel­er­ated the con­sol­i­da­tion is the mora­to­rium,” says Ja­son Healy, an at­tor­ney in pri­vate prac­tice who serves as ALTHA’s gen­eral coun­sel. “We’re in a five-year mora­to­rium since 2007. Be­cause of that, we only have a set num­ber of LTACs cur­rently out there,” he says. “And be­cause the sec­tor isn’t able to grow through new build­ing, the only way to grow is through ac­qui­si­tions.”

Healy cited Life­Care Hos­pi­tals’ pur­chase of six LTACs from Birm­ing­ham, Ala.-based re­hab provider Health­South Corp. as an­other ex­am­ple in ad­di­tion to ac­qui­si­tions by Kin­dred and Se­lect Med­i­cal.

Mean­while, the Medi­care Pay­ment Ad­vi­sory Com­mis­sion’s March 2011 re­port found that the num­ber of LTAC hos­pi­tals has grown even with the mora­to­rium in place.

“We ex­am­ined Medi­care cost re­port data to as­sess the num­ber of (LTACs) and found that, in spite of the mora­to­rium, the num­ber of (LTACs) fil­ing Medi­care cost re­ports in­creased 6.6% be­tween 2008 and 2009, the largest growth seen since the pe­riod be­tween 2004 and 2005,” ac­cord­ing to the re­port.

Most LTAC hos­pi­tals were able to en­ter the Medi­care pro­gram be­cause they met ex­cep­tions to the mora­to­rium, the re­port stated. Most had be­gun their qual­i­fy­ing pe­riod show­ing an av­er­age Medi­care length of stay greater than 25 days be­fore Dec. 30, 2007; had bind­ing agree­ments for the con­struc­tion, ren­o­va­tion or lease of a new LTAC hos­pi­tal; or had re­ceived a cer­tifi­cate of need on or be­fore Dec. 29, 2007.

“A ma­jor­ity of the new (LTACs) fil­ing cost re­ports were for-profit fa­cil­i­ties, and al­most all of them were free-stand­ing fa­cil­i­ties. Pre­lim­i­nary anal­y­sis of Medi­care’s Provider of Ser­vice data in­di­cates that far fewer (LTACs) opened in 2010,” ac­cord­ing to the re­port.

Look­ing ahead, Healy says he thinks that while most of the con­sol­i­da­tion is over, the lift­ing of the mora­to­rium could lead to new LTAC hos­pi­tal con­struc­tion.

“When it comes off, I think there will be in­ter­est in more LTACs,” Healy says of the mora­to­rium, adding later, “With­out any build­ing in five years, I think that’s a rea­son­able as­sump­tion that there will be more growth.”

Dr. Wil­liam Kapp is an or­tho­pe­dic sur­geon who serves as chair­man of Land­mark Hos­pi­tals, an LTAC com­pany that be­gan in 2006 and has one fa­cil­ity in Athens, Ga., and three in Mis­souri. Kapp cites a con­flu­ence of fac­tors lead­ing to the con­sol­i­da­tion in the LTAC seg­ment.

First, he says, some com­pa­nies were in a weak­ened po­si­tion that was driven largely by cuts in fed­eral re­im­burse­ment in the past three to five years. An­other rea­son is some pri­va­tee­quity firms that in­vested in this seg­ment in 2002 and 2003 were look­ing to exit. And he also echoed Wal­ters’ com­ment about the seg­ment’s fu­ture.

“I think there has also been some con­sol­i­da­tion par­tic­u­larly try­ing to meld LTAC and re­hab hos­pi­tals in cer­tain mar­kets so they can of­fer the full post-acute con­tin­uum,” Kapp says.

As post-acute providers move to­ward the

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