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Will PDPM Reduce Therapy Labor Costs?

There has been much speculation about the impact PDPM will have on therapy labor costs. Operators of skilled nursing facilities are hopeful that the labor costs will decrease under PDPM. If a facility uses a contract therapy company there is the expectation that the therapy company will pass along these savings in the form of lower pricing. The thought behind lower therapy labor costs centers around three areas, less therapy being delivered, lower wages and the opportunity to do group and concurrent therapy. Let’s take a look at each of these.

Now that reimbursement is not driven by therapy minutes some believe there will ultimately be less therapy minutes delivered. It is naïve to think that operators will not evaluate all aspects of service, including therapy, under the new payment model. Will that evaluation suddenly result in a significant drop in therapy minutes being delivered to each patient?  We don’t believe that will happen and nor does CMS. CMS has made it clear that they do not expect to see a change in minutes being delivered unless there is a significant change in the needs of the patient population.  They have gone as far as to require facilities to report the number of therapy minutes being delivered to reinforce this idea. We believe in the short term there will not be a significant reduction in the volume of therapy being delivered, which in turn means this should not decrease labor costs.

The next idea behind lower therapy labor costs centers around the new rules covering group and concurrent therapy. Group therapy (four patients) or concurrent therapy (2 patients) allows a single therapist to treat these patients. Up to 25% of the total therapy minutes for each discipline can be delivered under one of these two formats. There are certainly lower labors costs under this scenario but before operators assume big savings it is important to consider how much therapy can really be delivered under this format. There are questions to consider when determining how much group or concurrent can be done. These questions include how many Medicare A patients are typically on caseload and how much if any of their treatment is appropriate for group or concurrent. Depending upon these factors one might find labor costs being lowered by only a few percentage points.

The last factor in determining how therapy labor costs will change is the salaries of therapists. Salaries are driven by simple supply and demand. In southwest Ohio there is significant demand for most therapy disciplines.  Even with new programs starting such as the University of Cincinnati’s OT program, there are still not enough of most disciplines. The idea that salaries may come down is based upon the idea that less therapy will be delivered which in turn would reduce demand and lower demand will result in lower salaries. It is important to note that if the demand for therapy in skilled nursing falls it does not mean that there will not be an increased need for therapists in other settings. The past few years have seen a decline in skilled nursing census, along with decreased length of stays as mandated under value-based purchase programs. These declines have not led to lower therapist salaries in part due to a shift in care to home health. The demand for therapists in the home health setting has increased which has helped to keep overall salaries from falling, even if the demand in skilled nursing has declined.

Managing a skilled nursing facility has become increasingly more difficult due in part to compressed margins which are driven by lower reimbursement rates. There is the expectation that there will continue to be an increase in the acuity levels of patients admitted to skilled nursing, with healthier patients going directly to home health. It is wise for any operator to look for ways to reduce expenses under these conditions, including reduced therapy costs. Ultimately therapy costs may decline over time under PDPM however this is probably not something that will happen in the first year or two under the new payment model.

Author: Tom MacDonald