The Slow Decline of Long-Term Acute Care Hospital Growth
For over 20 years, Prevarian has been involved in Post-Acute Care Hospital (PACH) real estate development. PACHs fall into three main categories: Inpatient Rehabilitation Facilities, Behavioral Health Hospitals, and Long-Term Acute Care Hospitals (LTACHs). Of these, LTACHs saw their heyday of growth between 1997 and 2006, when a surge of new hospitals was opened across the U.S., often by growth-stage operators aiming for acquisition by major players like Select Medical and Kindred Healthcare. These operators became dominant, with Select now managing over 100 LTACHs. Notably, one-third of all LTACHs are clustered in Texas, Louisiana, and Massachusetts. higher-acuity
What Makes LTACHs Unique?
LTACHs provide acute-level care similar to General Acute Care Hospitals (short-stay hospitals) but with a focus on patients who require longer stays—often 20 to 30 days. They specialize in treating ventilator-dependent patients, managing post-surgical complications, and addressing severe illnesses or injuries that demand extended recovery.
To qualify as an LTACH (and receive reimbursement as such), hospitals must meet several strict criteria:
25-Day Average Length of Stay (ALOS): Patients typically require long-term, acute-level care.
3-Day Rule: Patients must have spent at least three days in an ICU or required prolonged mechanical ventilation.
25% Rule: No more than 25% of an LTACH’s admissions can come from a single acute-care hospital.
Quality Reporting: Participation in a CMS-mandated quality program is required.
Facility Standards: LTACHs must maintain specialized facilities and staffing for high-acuity care.
A Pivotal Moment During COVID-19
The pandemic highlighted LTACHs’ critical role in the continuum of care. With overwhelmed ICUs, LTACHs stepped in to manage COVID-19 patients needing prolonged recovery, including those on ventilators and “long haulers” dealing with complex post-COVID conditions. CMS temporarily waived the 3-Day Rule and allowed LTACHs to admit lower-acuity patients, expanding their capacity to decompress acute-care hospitals. This validation of LTACHs’ importance offered a brief respite, but the post-pandemic regulatory rollback has reinstated challenges.
Why Has LTACH Growth Stalled?
Over the past decade, LTACHs have faced mounting pressures that have slowed their expansion. Key factors include:
Payment Reforms: The 2016 LTACH Prospective Payment System introduced site-neutral payments, reimbursing at Skilled Nursing Facility (SNF) rates for patients not meeting high-acuity criteria.
The 25% Rule: Restricting patient sources has hindered growth opportunities, especially for hospital-within-a-hospital LTACHs.
Health System Consolidation: Many large health systems now manage higher-acuity care in-house, reducing reliance on LTACHs.
Increased Competition: SNFs and Inpatient Rehabilitation Facilities (IRFs) have improved their capabilities to handle higher-acuity patients, cutting into LTACH admissions.
Policymaker Scrutiny: High costs and perceived overutilization have led to stricter regulations and reimbursement caps.
Reinstated Medicare Sequestration: The 2% payment cut in 2022 added financial strain, despite a modest 3.0% rate increase for FY 2025.
LTACHs operate under some of the toughest admission and reimbursement rules in healthcare. Their average daily cost per patient can be five to six times higher than that of SNFs, making them an expensive option that attracts payer and regulatory scrutiny.
What’s Next for LTACHs?
The LTACH sector faces significant headwinds, and few industry leaders predict a new growth surge despite an aging and increasingly chronically ill population. However, the path to sustainability and relevance lies in adaptation. LTACHs must:
Specialize Further: Build Centers of Excellence in areas like respiratory care or multi-organ failure.
Embrace Value-Based Care: Align with accountable care organizations (ACOs) and demonstrate strong quality outcomes.
Address Chronic Disease: Position themselves as essential providers for patients with complex, long-term needs.
Modernize and Partner: Leverage technology, streamline operations, and forge closer ties with General Acute Care providers.
Conclusion
Long-Term Acute Care Hospitals fill a vital gap in the healthcare system, treating the most medically complex patients. Operators like Select Medical, Kindred, and PAM Health have persevered, providing exceptional care under challenging circumstances. While the future of LTACH growth is uncertain, innovation and strategic adaptation could usher in a new era—similar to how Skilled Nursing has evolved to meet modern demands. The next chapter for LTACHs may require a reimagined approach, but their role in the continuum of care remains indispensable.
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