Hospices Looking for Census Improvements: Add Some Innovations
Most hospices I talk with are finding census gains difficult these days. As I’ve written before, a number of factors are conspiring at the moment to keep census somewhat depressed and referrals tough to come by.
- With a struggling economy, all providers are looking for paying patient days. Referrals that should (or would) routinely go to hospice aren’t as readily available as upstream referral sources (hospitals, skilled facilities, etc.) don’t have the depth of other paying patient pools. In fact, all downstream providers are seeing compressed referrals. Simply put: When the queue of paying patients is smaller due to a fall-off of privately insured patients (due primarily to high unemployment), any paying patient including those that would be or should be hospice referred is better than a vacant bed. There simply are not enough patients with good payment sources for all of the supply of providers today.
- Hospice is a mature market or one that is stable and growing only very modestly. Despite the fact that it is cost-effective, arguably more appropriate and better for a terminal or near-terminal patient, it hasn’t permeated the traditional patient, familial and medical community psyche to a sufficient depth to create additional demand. Culturally, the medical community and patients still prefer to pursue curative options at virtually every step of the way as opposed to accepting death as a natural course of occurence.
- The financial incentives favor the pursuit of more expensive care as opposed to hospice. Payment in our system is highest and most fluid for acute, episodic, technologically based care and treatment. A simple economic axiom applies: What gets rewarded gets done (or, follow the money).
Taking the above into account, one would tend to think that generating additional referrals is an improbable task. While I won’t propose that doing so is easy, there are some options in terms of “innovation” that make sense. By innovation I mean programmatic changes or new programs that tap non-traditional markets or fractional markets. Being honest, simply marketing more or trying desperately to educate a few more patients and/or a few more physicians about the benefits of hospice care won’t create many additional referrals (again, see the top bullets for “why”).
Here are some favorites that I have seen tested in other settings, some within hospice programs, and/or other countries. Each is innovative and worthy of exploration by a hospice organization that is looking to create some novel niches, incremental referrals and brand differentiation.
- Day Hospice: A variation on adult-day care, this program provides a respite style of program but for caregivers to take a few hour break. Transportation, meals, socialization, etc. plus spiritual and other counseling typically round-out the services and where “cares” are involved, staff assist the patient as required. A hospice could start such a program either via a partnership with an existing adult day care provider, SNF, Assisted Living, Hospital or on its own in a suitable location.
- Disease Specific Programs: Develop end-of-life algorithms and care management programs for specific diseases such as ALS, MS, Parkinson’s, COPD, etc. Enlist physician specialists to provide review and consultation in the program development phase and even in a supporting medical director capacity. Consult with the local chapters of groups/associations that represent each disease (Parkinson’s Association, MS, etc.). The result of this approach is a three-fold win for the hospice. First, a segregated category of potential new patients. Second, a branding opportunity and co-marketing strategy through the physician specialists and the local disease representatives. Third, a focused opportunity to educate patients and physicians on when, why and how to make a hospice referral – these folks become a “warm” group.
- Embrace Alternative Therapies: Some organizations do this better than others but few do the compendium and certainly not as well as organizations in foreign countries (the Dutch are the best). Here’s a few of the better concepts that I have run across.
- Medicinal Marijuana: Now legal in 14 states and DC, medical marijuana is viewed as a wonder drug for symptom management, especially by cancer patients and patients with intolerable spasms (MS, Parkinson’s, etc.). Embracing this option where legal and perhaps, even becoming a distributor creates a “cutting-edge” brand and a marketing advantage.
- Acupuncture: For use either as a stand-alone symptom management aid or for adjunct therapy to deal with pain, nausea, spasms, headaches, etc. Bringing on staff, a certified acupuncturist is again, a cutting-edge option and one that is marketable.
- Mood Rooms: For inpatient programs, rooms developed with particular design elements have proven to be successful in easing patient’s symptoms and creating a more relaxed and tranquil environment. Hospitals have started to embrace this level of design and there is no reason that hospices don’t do the same. Everything from lighting to color to sound systems and views are designed to improve tranquility, comfort, and patient “mood”.
- Others: Massage therapy, music therapy, hydrotherapy, meditation, etc., are all fair game and in one form of another, have legitimate bases for use in a hospice setting.
- Increase the Technical Capabilities: Being more capable in terms of taking certain types of complex patients is always a cost-benefit issue although, done correctly, the return is still positive “financially”. Patients that often don’t benefit from hospice (due to cost issues) include ventilator patients, patients that require palliative radiation or palliative chemo-therapy, and patients that require specialty DME. In reality, the scope of each under a terminal diagnosis is limited and with solid advanced planning. good partnerships with other providers, and effective cost management, it is possible to tackle these patients and still achieve a modest margin. Don’t be automatically afraid or unwilling to accept patients in unusual circumstances and actually, increase your technical competence in dealing with these patients. They are an untapped market in many regards.
- Private Duty: For a hospice that is part of a home-care organization and/or can partner with such an entity, private duty hospice can be very profitable and very successful, albeit on a limited scale and honestly, only in certain market areas. There remains a class of people that are terminally ill, hospice eligible and in-need (and desirous) of extended caregiver or private-duty support at home. Targeting this market is as easy as developing good relationships with trust company officers, estate planning attorneys, and other trusted counselors to the “well-off”. One word of caution persists, however. This group is picky so to sustain the business, a hospice must be very customer service focused.
- Be Palliative, Not Just Hospice: For those hospices affiliated with home care agencies or, can build a relationship with a non-competing agency, offering expertise to patients that require symptom management and palliative services only makes sense, even if the same patients aren’t yet hospice appropriate or won’t at this point, consciously elect a hospice benefit. Expertise in symptom management and the palliation of chronic diseases is the strength (or should be) of all hospices and leveraging this strength to “marginal” hospice patients builds a bridge for the hopefully, inevitable referral. If nothing else, this business is incremental revenue.
As I indicated, the above is just a sample of my favorites from sources where successes have occurred. I encourage readers to add others, different ideas or to elaborate on perhaps, a twist or two to the above. Feel free to post your comments and experiences so that I (and you) can share our “collective” knowledge.
Hospice Contracts in SNFs: Survey Reminders for the SNF
Due to a fair amount of travel recently, I’m a tad behind in pushing out updates, etc. Despite my rather harried schedule, I have kept track of questions, issues, etc. and in the next week to ten days, I will endeavor to get caught up. Please know that I do appreciate the comments and questions from readers and colleagues.
A theme that I get queried on quite a bit involves the relationship between Hospices and Nursing Homes, particularly when the SNF enters into a contract with a Hospice for the provision of hospice care to its residents. Suffice to say that I frequently, and I have written on this subject before ( http://wp.me/ptUlY-3W ), hear concerns and misunderstandings among both providers (Hospices and SNFs) about contractual issues, care issues, documentation issues and compliance issues. The most recent set of questions or issues comes via my wife who is a clinical consultant (RN) in long-term care. While working with a client SNF on pre-survey preparations, she saw a number of things wrong from a compliance perspective that the SNF simply missed or misunderstood in regard to its responsibilities for its residents placed on hospice service with one or more of its hospice contractors.
Below I’ve outline the required compliance elements for SNFs when they have residents in their facilities that are on service with a Hospice agency (of course, via a contract). These elements are taken right from the federal Conditions of Participation for SNFs and represent the essential requirements that surveyors are tasked to review. NOTE: For SNFs it is imperative to remember that even though the primary responsibility for the careplan for a hospice patient in an SNF belongs to the Hospice, the SNF cannot transfer any compliance requirements that are its responsibility under the law to the Hospice. The all too common theme that I hear of “he/she is now on hospice and therefore, is no longer an SNF resident” is false.
- The Hospice and SNF must communicate, establish, and agree upon a coordinated plan of care for both providers that reflects the hospice philosophy, the individual’s needs, and the unique living circumstances of the individual in the SNF. The plan must address pain and symptom management and be revised and updated as necessary to reflect changes in the individual’s care needs. The plan must also identify the services that each provider will deliver in order to meet the needs of the patient and his/her desire for hospice care. NOTE: Regardless of this requirement, the Hospice is still required to provide the core hospice services (nursing, social service, bereavement, etc.) as stipulated under federal law. The subtleties lie in the definitions of duties as delineated in the plan of care.
- The Plan of Care must reflect the following:
- The participation of the hospice, the SNF and the resident and/or responsible party
- The plan of care provides for pain and symptom management and clearly provides for (or has) updates reflecting the changing needs of the resident
- Medications and medical supplies are provided for by the Hospice as required to care for the patient’s/resident’s terminal illness (requirement that the Hospice provides (or pays for) the supplies and meds related to the care of the terminal condition).
- The Hospice and SNF communicate with each other when changes to the plan of care are required.
- The Hospice and SNF are aware of each other’s duties and responsibilities in meeting the plan of care.
- The SNF’s services are consistent with the plan of care and in coordination with the Hospice. The SNF resident/patient should not experience any reduction in SNF services due to his/her hospice status.
- The SNF offers the same services to its hospice residents as it does to all other SNF residents not on a hospice service. The resident retains the right to accept or decline services offered by the SNF.
- If the SNF has concerns with the provision of service from the Hospice and the same is not satisfactorily addressed by the Hospice, it is the responsibility of the SNF to inform the appropriate licensing authority that has oversight of Hospice’s in the state.
The biggest key to take away from the above is that the SNF and Hospice need to develop a very clear plan of care, hold each other accountable for the delivery of services as outlined under the plan of care, and clearly understand each other’s duties and responsibilities under the law and as detailed in the plan of care.
Due Diligence and Acquisitions: A Review of Common Pitfalls
A regular, although not necessarily routine, exercise that I go through is a re-evaluation of recent acquisitions in the senior housing/long-term care industry to see “how they are doing or performing” post transaction. Perhaps the primary reason that I do this is my curiosity regarding the effectiveness of the due diligence process and the accuracy of the valuation or economic value proposition created by the acquirer as translated into purchase price. In short, I’m always curious as to whether the buyer got what he/she/they expected at the anticipated cost (purchase price plus other investments required over the first year or so) he/she/they expected to pay. As the mechanics and theory behind valuations and due diligence vary between deal to deal (from what I have observed), it is interesting to look at “how things are turning out” once the feeling of accomplishment and the haze of the deal have passed.
When things don’t go well or aren’t going well at the one year mark, something I find more common in health care transactions (SNFs, Home Care, Hospice, etc.) and less so in Assisted Living or Senior Housing, it nearly always seems to a be a flawed due diligence process that led to an over-estimation of value. More succinct: Because the due diligence process missed too many issues the price became over-stated as the costs associated with achieving stable operations were under-estimated or the classic, “he/she/they paid too much for what they got”. Where I notice the largest number of errors occurring during due diligence is when the due diligence is treated as a justification for the purchase price or, a process of validation rather than a process to quantify the economic risks and benefits that are modifiers to the valuation and ultimately, to the negotiated price. Proof of a what a friend of mine always says; “It doesn’t take a rocket scientist to overpay”.
Separating the issues a bit, valuation is effectively a financial quantification of the relative worth of the business as it stands today, including business/commercial value (cash flow, revenues, expenses, etc.) and tangible and intangible asset value (bricks and mortar, equipment, trademarks, name, etc). When Buyers capably test the values against their own business models and the available universe of comparable values, the Buyer has established a range of possible purchase price points. Ideally, within this range lies a number that the Seller will accept or that matches closely, the Seller’s asking price. At this stage, I would argue that a Buyer should never impute any assumptions on a go-forward basis about “how much” expenses could be lowered or revenues increased to massage an improved value. A wise Buyer would best assume that upon acquisition, almost all aspects of the business “as is” are set as constant and these same constants are the financial constraints that place the boundaries on the project’s range of values. This is not to suggest that a pro forma assumption about “go forward” operations that assumes lower debt costs (if applicable), some efficiencies via scale and some reduction in overhead may not be applicable (if in fact they are real and quantifiable). It is however, a caution based on too many valuations completed at the behest of or by Buyers, that include unrealistic assumptions of census increases, revenue increases, expense reductions, etc., that are hardly quantifiable or even in fact, justified for the particular transaction. To illustrate: A few years ago I helped an out-of-state buyer get into a particular nursing home transaction (nursing home was for sale). The buyer owned nursing homes in other locations so the industry was not totally foreign. The location of the facility was decent but the plant was old and the facility’s reputation marginal. The asking price had yet to be set “in stone”. The buyer, accustomed to paying higher prices in other areas, began talking numbers that were far too high for the project, justifying the price with claims of significant improvements in Medicare census and Medicare revenue per day that were unrealistic for the facility (never happened at this location before) and were beyond the norms of the market area. While I tried to counsel the buyer to be more judicious, the buyer went ahead and acquired the facility. Within two years, the buyer abandoned the site, having substantially over-paid, never achieving the projections for revenue and census “touted” for the facility.
Due diligence encompasses the financial valuation but extends the tasks into a level of greater detail that adds or subtracts (creation of debits and credits) from the range of possible values/prices. In the best of due diligence processes, the methodology also incorporates a review of risks and assists in quantifying costs associated with these risks. In reality, due diligence should attempt to paint a complete picture of all elements of the transaction, providing final quantification of the price and qualifications to the transaction that must be accounted for by the buyer. Thought of or approached this way and using the example I presented above, the buyer would never have paid what they paid for the facility and would have realized that achieving a stable, successfully operating SNF in that location would take them years and significant financial and human capital investments.
While buyers tend to approach due diligence and valuation different, each varying upon a theme and using their own methodology and checklists, I’ve found that the problem transactions that I follow each tend to miss one or more of the following elements. Some of these elements are absolutely critical if the buyer is out-of-state or out of the area and the acquisition represents his/her/their first foray into a given market area.
- Economic Location Analysis: Not to be confused with market research principally relying on demographics, this analysis looks deeper into the key economic location elements that are critical to the success or failure of the transaction at the given purchase price. For example, location analysis would quantify labor resources and costs – key elements for a healthcare provider. Location analysis would also quantify the strength and depth of referral patterns and the quality of such referrals by desired economic value (payer sources, etc.). Location analysis also examines the market economy and the up or downward trends that are present. Too many providers over-estimate the value of a particular location without understanding the economic factors that create or detract from the project’s value.
- Provider Status Assumption Risks: Buyers that are acquiring healthcare projects with existing Medicare business and expecting to assume the former provider’s Medicare number (most common in acquisitions) need to understand that the assumption of the Medicare number brings the assumption of risk. While it is true that lawyers will create indemnities and warranties that seek to limit the buyer’s assumption of risk, using these clauses to enforce terms when risks are present or encountered is often an expensive and fruitless exercise. In other words, the seller may no longer exist or as is often the case, will require the buyer to use an expensive legal process to enforce the indemnity and warranty provisions, all while the compliance requirements are inescapable to the current owner. Preferably, although not an expeditious process, buyers should obtain a new provider number and status for the project from CMS, targeted effective on the change of ownership – for Part A and Part B as applicable. It can be done as I have done it with each of my “former” acquisitions. By not assuming an existing provider number, the buyer avoids a whole host of issues and compliance problems that may or may not be disclosed or even known by the seller. CMS, as one would suspect, will only chase the “owner” of the existing provider number when problems arise or are detected and if that is the new owner, regardless of whether the issues pertained to a former operator/owner, the new owner is expected by CMS to be the sole source of remedy. CMS does not care about the terms of the deal between private parties.
- Billing Risks and Revenue Accuracy: This is a problem area that I see all to frequent. The buyer relies on the seller’s representation of revenues and does no further testing. I lost count of how many times buyers relied on accountant prepared or audited statements as being “gospel” only to find upon ownership that the revenues were over-stated. Why? First, even during an audit, accountants do not devote sufficient time or have often, sufficient expertise to analyze, the accuracy of the Medicare claims submitted by the seller. The typical tests are for basic paper-trail elements such as RUGs groups in SNFs matching the billing, matching the revenue postings. What needs to occur is a much more in-depth, technical review to determine if the Medicare claims that correlate to patients are in fact, correct. Again, I have seen circumstances where the Medicare revenue per day is grossly incorrect as the seller had no idea how to properly bill Medicare claims. Last, I rarely see buyers benchmark the revenue and occupancy numbers against area comparables. Payer mix and revenue per day numbers across the industry tend to fit pretty narrow ranges and when, in any transaction, they are out of this normative range, a red flag should rise.
- Compliance Risks: Another area that I see cause buyers problems time and time again. Compliance with certification, survey and accreditation standards is a function of past and yet to be. Acquiring a provider with past problems in these areas requires very careful analysis and discussions with regulatory authorities. Regulators need to be queried extensively and even, negotiated with when the buyer is acquiring a provider with a record of moderate to serious non-compliance. Don’t have the discussions or do the additional analysis and assuredly, run into compliance problems that cannot be deemed as “owned” by the prior owner/operator. Likewise, acquiring a provider with a reasonable or decent history doesn’t mean that the current status of compliance is clean. Sellers tend to wane on their commitments to compliance the closer the time comes to deal “certainty” or closing. A fair amount of time may also have passed since the current owner was re-accredited or surveyed. Complaints may be pending requiring regulatory review. What is certain is that once the acquisition is complete, regulators/surveyors will descend on the new owner in fairly short order. Take the time necessary to thoroughly review the past and current status of compliance.
- Market and Reputation Risks: Simply stated: How is the current provider viewed within the market? New ownership doesn’t mean new perceptions about the quality of the current operation. If the current operation is viewed marginally or even negatively, a new owner will have a great deal of work ahead to establish an improved or new reputation. If the business relies heavily on referrals (and most health care provider organizations do), it pays to check referral sources and other common influencers to understand the “market” perception that is in place.
- Environment and Infrastructure Risks: Assuming that acquiring an existing provider means that existing brick and mortar and equipment doesn’t require improvements immediately can be a false assumption. Existing providers may operate under waivers or as in some states, new ownership necessitates that the entirety of the project be brought to current code with the issue of a new license. Such is the case in Wisconsin. A thorough review of the environment and the infrastructure tied to building code requirements, completed by qualified individuals/organizations will minimize this risk.
- Employment Related Risk: Here I am not talking about the legal risks associated with handling employment issues during the closing processes. The risk that I am talking about occurs when buyers make one of two (or both) assumptions about the quality and stability of existing management personnel and/or, their own management personnel. The error I see too often made occurs with out-of-state buyers not acquiring sufficient local or area expertise and/or, having enough local support available via contractors (consultants, etc.) to ease the transition. Each market area and certainly, each state brings forth nuances and issues that require stable management and unique knowledge requirements. I’ve seen too many new owners underestimate the resources needed and over-estimate the ability of their management to handle new areas and states foreign to them.
Compliance, the Courts and a Risk Reminder
In previous posts I’ve written about the need for providers in all industry sectors to fully understand the compliance and legal risks that are inherent to the appropriate industry sector, as well as to health care today in general. As someone who has been immersed in health care operations and health policy for the past quarter century, I can honestly say that I have not seen a period more perilous for providers and quite frankly, I perceive that it will remain risky and perhaps escalate in the near future. Consider the following;
- There is renewed vigor and funding in Washington to root out perceived waste and fraud, principally focused on Medicare. Every sector that I follow is a target for the OIG and/or Recovery Audit activity. In spite of GAO findings that Recovery Audits have fallen short of achieving their targeted goal of reducing $231 million in over-payments or improper payments, the action from CMS is to “improve” the system or in other words, increase the amount of personnel and resources devoted to this task. In July, the Department of Justice announced the results of a multistate Medicare fraud investigation implicating 90 individuals, tied to a total of $251 million in Medicare payments. The investigation involved doctors, nurses, therapy companies and others. The investigation was part of the new Health Care Fraud Prevention and Enforcement Action Team.
- According to a recent report from the Congressional Research Service the number of new agencies, commissions and boards created under the recently passed Health Care Reform law is “unknowable”. The Center for Health Transformation headed by former speaker Newt Gingrich estimates that 159 new agencies, offices and programs were created under the PPACA and the Joint Economic Committee claims 47 new bureaucratic entities were created. What this all means in brief is “more regulation”, not less and in most cases, regulations that haven’t even been written yet. Most troubling is that the PPACA seemingly creates bundles upon bundles of additional regulation but is virtually moot on any current regulatory relief or reform. Two interesting charts regarding the bureaucracies created under the PPACA are available at http://www.healthtransformation.net/
- Existing regulatory burdens are already steep and increasing, regardless of the PPACA. Take for example, the annual CMS rule making process regarding rates and payments. Wholesale changes in Medicare assessment requirements and payments are forthcoming this fall for the SNF industry. The home health industry has also seen its share of Medicare reimbursement changes and required assessment and documentation changes under Medicare imposed by CMS without any legislative activity. New HIPAA requirements regarding electronic communications came into play this year, new self-disclosure rules under Stark and the False Claims Act, as well as dozens of other agency regulations.
- Non-health care specific laws also change constantly and impact providers. Whether these laws are labor related, tax related, state laws, local laws, commerce laws, building codes, etc., all are in some way related to the general business conducted by providers.
- The court system (or more appropriately, the plaintiff’s bar) has become more actively focused on the provider side of the health care industry. In just the first seven months of this year, two significant class-action suits have laid new fertile ground that providers should both fear and understand. The first occurred in California where a jury awarded plaintiffs $613 million in statutory damages and $58 million in restitutionary damages (punitive damages not yet determined) against Skilled Healthcare Group, a proprietary nursing home chain. The award was predicated on a 4 year old complaint that the organization failed to staff its facilities to meet the State of California’s minimum staffing requirement of 3.2 nursing hours per patient day at 22 of its California facilities. The ”rub” in this case for providers is that no harm or actual damage theory was applied to the “class of patients” affected or in other words, the residents of the 22 facilities were never effectively damaged in total yet, the jury awarded the maximum damages allowed under California law. The result is that, even before punitive damages are assessed, the damage amount is larger than the value of the organization or more simply, if the damage amounts remain unaltered, Skilled Healthcare is bankrupt. A final piece of irony? The regulatory system that oversees nursing homes in the state took no specific action against Skilled Healthcare to prevent the “understaffing”. The second case comes from the home health industry where as of today, three class action suits have been filed against Amedysis, the industry’s largest proprietary home health company. The suits were born as a result of a Wall Street Journal article and a subsequent Senate Finance Committee inquiry into the Medicare billing practices of large, for-profit home health companies. The fundamental allegation is that Amedysis, along with other major for-profit companies, used the Medicare rules in-place to essentially increase their revenues. The fundamental issue pertains to therapy visits and a provision under Medicare two plus years ago that provided for incentive payments to be made to agencies based on the number of therapy visits (more visits, higher payments). The basis of the suit against Amedysis (clearly a target because of its size, its focus on Medicare patients and the Wall Street Journal article) is that the company overstated its revenues and once investigated or discovered, the same activity now disclosed caused shareholders to lose value as a result of falling stock prices. In a unique twist, the suits use Sarbanes-Oxley, a securities related law that requires senior corporate officers to avoid activity that would result in unethical conduct or malfeasance, harming shareholders. As in the Skilled Healthcare case, the irony here is thick. First, there is no allegation that patients were harmed or that care was rendered inappropriately. Second, the activity of Amedysis was not under investigation by CMS or the OIG concurrent to or before the filing of the suits. In other words, the government’s own enforcement activity was moot on this issue and there is considerable question as to whether what Amedysis did was even improper given the rules that were in effect at the time. Third, virtually all providers practice Medicare maximization or that time-honored practice of using Medicare’s own rules concerning reimbursements to maximize the amount of reimbursement available to them. If the Amedysis case is the standard, virtually every Medicare provider would in fact, be guilty of similar conduct dependent on the industry and the applicable reimbursement rules.
Taking the above into account, and it is truly an overview only, providers need to recognize the gravitas of the environment and the totality of legal and compliance risks that are present and mounting. Recognition and identification of the compliance requirements per applicable industry sector and the legal risks associated with the business and operations encompassed is where providers can begin to respond, not react, and develop the tools, processes, plans and ultimately culture, that mitigates risk and creates effectively compliant operations (“effectively” because totally compliant is improbable if not impossible). Below are some time-honored tips and approaches for creating an organizational environment that achieves high-levels of compliance and mitigates legal risks (I ran a very large, multi-site, complex organization for twenty plus years and never had a lawsuit).
- Within each industry sector there are tons of regulations that in theory, require daily compliance. Likewise, within each industry sector, there are compliance themes and “key” compliance requirements. Focus on the key compliance requirements as activities, tools, and systems that drive compliance in these areas mitigates 90 plus percent of the compliance risk and in all cases, the risk that is expensive and serious. I like to think about the core intent of compliance and create understanding and organizational capacity and systems around these intents. For example, in the areas of patient care, outcomes are the baseline of regulations. Regulations focus on documentation of outcomes, prevention of negative outcomes, and actual standards for outcomes. Systems which assure a close match with the regulatory expectations and are part of an organizational QI process (constantly) achieve the regulatory intent and create a “halo” of compliance. The same can be said for billing practices under Medicare and Medicaid, privacy requirements under HIPAA, etc. Polices are insufficient to achieve the requisite level of compliance required and quite often, do nothing more if not integrated within organizational practices and systems, than create more compliance risk.
- Legal risks are harder to quantify but in some cases, easier to generally address. Take the two legal cases I illustrated above. In the first case, if the staffing requirement in a state is 3.2 hours per patient day, any provider flirting with these levels consistently is asking for trouble – avoid the risk entirely. In the second case, as I pointed out, Medicare maximization is a time-honored tradition for providers. What is not time-honored or allowable, is any activity that suggests that the provider is routinely and consistently, seeking to “game” the system. I see too many therapy companies and SNF providers that merely “up-code” all residents into Ultra High therapy categories as a means of achieving the highest Medicare reimbursement per day. I see too many providers stress the justifications for additional days, manipulate the rules to extract additional benefit periods, and create care requirements and documentation that is not supported by the actual needs or conditions of the patient. These activities, when pervasive and constant, create a legal risk that is tough to impossible to defend. A better approach is to develop strategic and operational plans that maximize revenue the right way. The right way is by achieving high-levels of organizational capability in delivering the right care to the right patient at the most efficient cost levels possible. It also means developing marketing plans and programs that attract the ideal patient mix that produces the highest possible revenue profile for the organization. With respect to employment, avoiding significant legal risks means dealing with employees within the constructs of employment law. This doesn’t mean don’t fire or don’t discipline. It means fire and discipline effectively and only for consistent, documented and legally permissible activity. A core or key requirement is to effectively train and only employ, capable and competent management that know and understand the applicable labor laws and are capable of using effective hiring and supervision methods that produce organizational results without violating company policy or the law.
- Organizationally, the primary methodology to achieving a high level of compliance and to mitigate legal risks involves creating an organizational culture that focuses on compliant activity and solid risk management principles. While not exhaustive, here are some key elements that are part of the culture.
- Internal and external education and audits that identify risks and provide solutions. Developing organizational thought-leaders and subject matter experts provides key resources that can be deployed to solve problems, identify risks, and provide education.
- Encourage reporting and self-disclosure and reward the activity. Management must be open to hearing “what is not right” and providing reinforcement for this activity.
- Integrate compliance and risk management as part of strategic planning and allocate budgetary resources adequate to address the risks. While risk prevention always appears to be money with another use, it is far cheaper to prevent compliance and legal risks than it is to bear the costs after an event has occurred.
- Reward the concept and ideology of “doing the right things” first as opposed to those things which may be short-term, expedient or more profitable.
- Benchmark and test key indicators constantly. For example, if your Medicare census and revenue per day is higher than industry norms and/or market norms, make sure that such results are tied directly to organizational performance and activity, not to billing creativity.
- Provide ownership to compliance activities and outcomes to all staff, not just management. Engage the entirety of the workforce.
- Keep up with pending or new regulatory activity and legal activity and get “ahead” of the curve. Organizations that only respond to laws already passed and cases already decided tend to get caught trying to “react” rather than remain vigilant and prepared. Rarely do new compliance requirements and legal requirements come instantaneously on the radar screen – they have been there for a while. Providers that see and understand the trends can use the virtue of time to integrate new systems into existing systems, teach new knowledge requirements, and build new organizational capacity to manage effectively, the new requirements.
As the Home Health and Hospice World Turns: Part II
In Part I, I wrote about my last week’s conversations, etc. regarding the home health industry, specifically Amedysis, the Senate Finance Committee inquiry, the industry impact via the PPACA and the likely consolidation and merger trends that are approaching. Suffice to say, not all of last week’s news and conversations focused on the home health industry as over the last thirty days, much has happened in the hospice industry as well. The difference between the two industries is that in hospice, the major news involved a significant merger and in home health, the major news involved the legal and compliance issues of the largest provider entity – Amedysis.
The hospice industry saw, via the merger between Gentiva and Odyssey, the creation of the largest home hospice company in the industry. Gentiva, while also a provider of home health, clearly chose to direct more of its attention to the hospice industry, moving from a moderate player in the industry to the predominant player via the acquisition of Odyssey. Odyssey, while not as large as Vitas (the former largest hospice provider), held substantial market share and presence and in many regions and distinct market areas, competed head to head with Vitas for patients. For more information on the Gentiva/Odyssey transaction, see a related article in my company’s E-Newsletter at http://wp.me/pD9Ac-4Q .
Analyzing this merger leads me to a series of assumptions about where the hospice industry is at present and where it is likely headed.
- Hospice is now clearly a mature market or in other words, a market that is unlikely to grow significantly over the near to intermediate term horizon. Despite a fairly profound demographic shift occurring over the next twenty to thirty years (the maturation of the baby-boomers), there is no real indication even with this influx of older adults, that hospice as model of care, will gain in referral popularity. While seniors utilize hospice more in total numbers than any other age cohort, as a percentage of the total cohort, utilization trends show little forward growth. There are a number of reasons why;
- Culturally, U.S. medicine and the U.S. population still values the process of cure or health restoration far greater than the concept of natural death. As hospice is a downstream referral (the referral comes typically from non-palliative medicine trained physicians or via hospitals and/or long-term care providers), the hospice industry relies on the referral source to be; a) knowledgeable about the value of hospice and how it works for patients and their families, b) willing to forego potential incremental revenue for continued care by making the referral to a hospice, c) willing to engage the patient and the family in a difficult conversation regarding end-of-life and treatment futility. As long as these dynamics remain in place to the extent they presently are, the growth of utilization will remain fairly stagnant.
- Financially, the incentives for referrals to hospice don’t truly exist within the current U.S. system. There are no barriers in-place to reduce the reward (payment) for continued acute, diagnostic or curative care (choose your own verbiage) and as a matter of fact, the reimbursement systems (private and public) pay incrementally more for more intense care than palliative care, even if arguably, the care is futile. As only patients and their respective treating health professionals can conclude that continued curative care is futile or unreasonable, the process of garnering more money for more treatment remains intact as a perverse incentive.
- While not for hospice people or physicians trained in palliative medicine, terminality remains an uncomfortable and even disputed condition for many physicians. Patients and there families still wish to avoid discussions far too long and in some cases, avoid the discussion altogether. While in-roads are perhaps being made in some medical centers and in certain communities, these in-roads are miniscule and not evident of a ground-swell movement toward open discussions regarding end-of-life decisions.
- As with the home health industry, the movement in Washington is toward curtailing the growth of hospice spending. The prevailing feeling in Washington policy arenas, supported by Medpac, is that the hospice reimbursement under Medicare is too generous and the benefit itself, easily manipulated and poorly defined. While the PPACA did little to negatively impact the hospice benefit or payment, the recommendations directed to the Secretary of HHS in the language intones significant changes forthcoming.
- Reimbursement under Medicare will change such that early days in the initial benefit period will be paid more as will days at the end of the patient’s stay (proximal to death). Days during the interim, longer stays will be reimbursed with lower payments. The point here is supposedly a recognition that patients with long stays have periods of stability necessitating far less care from the hospice.
- More emphasis will be placed on denying stays for non-specific terminal conditions or denying portions of stays. CMS has determined that too many longer stays are related to diagnoses such as terminal dementia, failure to thrive, etc. In order for these stays to be covered, the onus will fall on the hospice to provide very detailed documentation supporting patient decline.
- More emphasis will be placed on physicians to document terminal conditions and to prognosticate length of likely survival, especially at recertification periods. More direct “hands-on” involvement of physicians will also be required (physically seeing the patient).
- Certain types of stays and relationships between hospices and nursing homes will be closely monitored and reviewed. CMS and Medpac have determined that hospice stays in nursing home environments on behalf of nursing home patients are considerably longer and possibly in many cases, in violation (the hospice) of the conditions of participation as hospices utilize nursing home residents as sources of revenue but often, fail to meet the care requirements (using the nursing home as the source of care and service) under the hospice federal code. Additionally, CMS and Medpac have placed the target for reform squarely on the large for-profit hospices such as Vitas, Gentiva and Odyssey which have typically used nursing homes as major sources of referrals for hospice patients.
- The PPACA, while not bending the cost curve or reducing the overall level of national expenditures on health care, does change in the interim, the overall health care economy. Providers are re-positioning and re-grouping to combat what they perceive, and in some cases know, will be negative changes to how they presently do business. Providers which rely heaviest on Medicare as the bulk of their overall revenues will move the fastest and the most aggressively to alter their current business practices, knowing that regardless of the overall status of the PPACA (repeal, restore Medicare cuts, etc.), the health care economy is entering a long period of fiscal constraint – payments will never be as high or as fluid as they once were.
- Because of points 1, 2 and 3 above, the industry will head into a period of consolidation and even, contraction. The Gentiva/Odyssey merger is a signal of the maturity of the industry and the trend toward tighter regulation of hospice stays under Medicare (the bulk of the hospice revenue) and less economic value per each stay. Lower future revenues per stay, either via reimbursement cuts or regulatory constraints placed on the length of stay, means more overall stays are required to equal the same or greater revenues going forward. As the growth curve of new “potential” referrals is flat, the only real source of new business or referrals for a provider is acquisition of existing market share (buying someone else’s referrals). In order to maximize profitability in an environment where the market is mature and the total revenue per each case is flat to shrinking, providers will have to adopt one of the three strategies below.
- Acquire other providers to build more referrals or volume. While each patient stay will be economically less valuable, increasing the total number for a provider while maintaining expenses on a ratio basis, lower than revenue, will provide a method to achieving overall net income targets - critical for publicly traded provider organizations.
- Shrink the organization to fit the new revenue and length of stay realities that are in place and forthcoming. An organization that can right-size its operations to fit the new business paradigm will be smaller but potentially equally or perhaps, more profitable. The risk here is that provider organizations that are acquiring market share may marginalize some markets such that a shrinking provider (by choice) loses desirable market share.
- Expand non-Medicare business and add complementary businesses that may provide incrementally equal or more revenue than that which is lost under Medicare. Arguably, this strategy may only work for regional or single market providers and those that have strong system ties (hospital owned, etc.).
One final point to note concerns the economy. Absent from the above factors I laid out influencing the hospice industry is the stagnant economy. With recovery a daily discussion regarding likelihood and timing, current uncertainties persist that impact hospice providers rather dramatically.
- The overall number of paying patients available to all providers within the health care economy has shrunk in recent years. This shrinkage is primarily due to job losses and benefit losses. Until employment rebounds and jobs with benefits become more plentiful, consumers for health care in the form of paying patients will remain down.
- When fewer paying patients are in the queue, those patients that do have a payer source, even a less than optimal government payer source, are prized commodities. Each provider wants a piece of the same paying patient.
- Hospice is as I pointed out, a downstream referral. When the upstream referral source, principally hospitals, lacks sufficient paying patients in the queue to replace current patients it “may” customarily refer downstream, it holds the paying patient longer, either delaying the referral and the portion of revenue that comes with a longer stay or avoiding the referral all-together. Similarly, all downstream referral sources such as nursing homes compete aggressively for the referrals even though a referral of a terminal patient (or potentially terminal patient) is ordinarily, not a prize catch for most nursing homes. This competition erodes the number of total possible referrals available to a hospice.
- Each patient has an economic value to a provider. When a patient with a higher economic value (a better payer source) are lacking, providers sort down to the next patient level. This sorting process occurs as a result of too few patients with payment sources available to match the supply or capacity within the existing provider universe. Some markets hit hardest by the downturn will evidence this reality in greater depth and unfortunately, with greater persistency. For hospices (and all downstream providers) in these heaviest hit markets, referrals have trended down and will stay down until the supply of patients with payment sources increases and specifically, the supply of patients with better payment sources and today, deferred health care needs (e.g., elective surgeries such as joint replacements, etc.).
As the Home Health and Hospice World Turns: Part I
Sorry for borrowing (piece of) a soap opera title for this post but it is rather appropriate given the news that occurred over the past 30 days. Just this past week, I’ve been interviewed by two business newspapers and on the phone with an investment banking firm I consult with from time to time regarding Amedysis, Gentiva and Odyssey’s merger, the pending impacts of the PPACA on the home health and hospice industry, mergers in the industry in general and using a “catch-all”, what the “heck” is going on in the home health and hospice sectors. With a chance to recoup over the long 4th of July weekend (and organize my notes from last week’s conversations), a post on what all the conversations were about seemed appropriate.
Amedysis: A month ago, on my company’s E-News site (http://apexhealthcareconsultants.info), I edited an article regarding the Senate Finance Committee’s inquiry into the Medicare billing practices of a handful of very large home health agencies (Amedysis, Gentiva, LHC Group etc.). The inquiry is a result of an article that appeared earlier in the year in the Wall Street Journal, focused quite intently on Amedysis’ billing practices; principally as applicable to therapy visits. The fall-out since the Wall Street Journal article and the Senate Finance Committee article is two-fold. First, the class action suit (I’ll touch on it in a bit) and the hefty drop in Amedysis stock price.
In brief, the class-action suits (there are three) focus primarily on the perspective of shareholders (the “class”) and alleges that the questionable Medicare billing practices (none of which at this point, CMS or the OIG has taken specific issue with) served to artificially increase the share price of Amedysis stock. The allegation of abuse of the Medicare system, prior to any action taken by the federal regulatory system in the form of a fraudulent billing investigation or claims investigation, is a bit different in-so-much that it essentially accuses the company of manipulating its earnings as opposed to causing harm to any patients or group (class) of patients. The “harm” for shareholders is the drop in price that would/did occur as a result of the alleged fraudulent billing practices. To add a twist, the suits also allege Sarbanes-Oxley violations which require the corporate officers of publicly traded companies to abide by a code of ethics. Amedysis settled an allegation of fraudulent Medicare billing practices in 2003 (for Medicare activity between 1994 and 1999) and as part of the settlement, expanded its corporate compliance activity/program. Additionally, since 2003, Amedysis has had notable turnover of the key financial executives (CFOs primarily) with active rumor-mill chatter focusing on the cause related to overly-aggressive Medicare billing practices. Medicare represents 87% of Amedysis annual revenues, by far the largest percentage for any home health provider in the industry.
As Paul Harvey (famous radio newsman now deceased) was famous for; “Now, for the rest of the story”. There are a number of different and integral factors in play that are unique to Amedysis but also, symptoms of an industry, a payment system and a flawed health care reform law.
- The issues regarding possible Medicare over-billing or at least, aggressive billing are not new for Amedysis. Their growth has been remarkable and unique for an agency so fully immersed in a government revenue stream. What is unique at this point in time is that the Senate Finance Committee inquiry, Wall Street Journal article and now the class-action suits come in advance of any customary federal regulatory actions. I do suspect that CMS and the OIG will enter the fray in the near future.
- Medpac has reported to Congress repeatedly that the Medicare payments to home health agencies were “lavish”, producing double digit profit margins on average, for most Medicare home health encounters. The PPACA (reform law) effectively cut Medicare payments to home health agencies and increased the documentation requirements for agencies to justify the necessity of continued visits.
- The feds have aggressively stepped-up their search via Recovery Audits and targeted billing inquiries for Medicare over-payments or more appropriate, Medicare fraud activity. This activity is two years old and growing each year with additional force. The writing is/was “on the wall”.
- To fully understand “what” is at the core of the Amedysis issue is to understand the age-old economic axiom that states, “what gets paid for (rewarded) gets done”. Medicare provided a utilization incentive tied to a certain number of therapy visits ($2,200 for 10 visits). Agencies thus targeted patients and developed care practices that maximized the opportunity to garner the incentive payments. In a typical government move, CMS rescinded the incentive payment as it became obvious that agencies were “gobbling-up” the requisite visits and conforming patients to achieve the incentive. A more meager incentive of a few hundred dollars is now provided at six visits, fourteen visits and twenty visits. Oddly enough, companies today seem to provide far more “six visit” encounters than twenty visit encounters (profitability vs. cost for twenty visits as well as a likely evident decline in medical necessity by the twentieth visit). Amedysis of course, is not alone in seeking to tie care provided to reimbursement nor is the home health industry alone in gaming the Medicare reimbursement system for additional dollars. For-profit hospitals, nursing homes and hospice agencies (and non-profits) alike are skilled at “Medicare maximization”, effectively matching what Medicare will pay with certain types of referrals, matched against the costs incurred to care for certain types of patients. This game goes on year-in and year-out with CMS constantly tweaking PPS categories to incent providers to take certain patient types (payment was too low) and to reduce the profitability of other patient types. In short, what gets paid for gets done.
- The PPACA did nothing to reform the system and arguably, it made it worse by attempting to extract funds via reimbursement cuts from Medicare. Of course, it is unlikely these cuts will be fully made or sustained as Congress has never shown the political will required to cut provider payments. By not truly reforming how Medicare reimburses providers for care, the PPACA only served to layer on huge amounts of bureaucracy to an already antiquated reimbursement system. In the end, nothing changed in terms of how Part A and Part B of Medicare pays providers; only the amounts “theoretically” changed. As a system, Medicare pays more for more care and higher acuity care. Providers will naturally gravitate their referral gathering efforts and marshall their care delivery systems toward the patient encounters that create the most “spread” (cost vs. payment). As the overall universe of these “profitable” patients is somewhat fixed, the provider universe is forced to unnaturally stretch the definitional boundaries of patient types (upcoding in plain health care vernacular). In other words, there are not enough truly “organically” existing patients that fit the best (most profitable) reimbursement categories but there enough that are perhaps, at the fringes. Add the fringe patients with a bit of creative tweaking via assessment and documentation to those that organically exist (fit the exact patient type) and presto, sufficient current volume for all providers. The difficulty for regulators and others who would charge that the fringe patients are not truly members of the organic group (those whose care requirements exactly match a certain reimbursement category or categories) is “proof”. The provider and medical communities are far better versed in assessment techniques and documentation requirements and as such, little can be done to reign in this reimbursement “three-card Monty” game. Until the reimbursement is reformed to reward better, more appropriate and efficient care versus “more” care, the over-reimbursement problem will remain, as it has for decades dating back to when providers ballooned certain costs to receive higher per diem rates from Medicare (under the cost-based reimbursement system).
What comes next in this paradigmatic shift in the home health world is merger/consolidation. As the profitability of one element of Medicare business shifts, larger agencies will acquire smaller to medium-sized agencies in order to increase market-share, lever infrastructure, and to supplement lost incremental margins with volume. Simply put, if the relative margin for one type of encounter shrinks, recouping that lost margin (or at the least the majority of it) becomes a function of incurring more encounters with smaller margins. As long as the incremental costs of additional capacity to handle greater volume remains in a ratio, lower than the net revenue received from the greater number of “less profitable” encounters, it is possible to generate a similar level of organization-wide, net operating income. The fastest and arguably most efficient way to create incrementally more encounters is to acquire someone else’s encounters at a price-point that is sufficiently low enough to create virtually (virtually to mean within a short time-frame) instant margin via the increased volume/market-share.
In effect, smaller agencies with less volume to spread the reimbursement loss/risk become attractive targets in this environment. A smaller agency’s value drops as its revenue/margins shrink and with limited geographic presence and referral markets to spread the lost revenue risk across, the entity price declines. The decline in entity price is attractive for a large acquirer seeking solely market share and/or incremental volume. In short, the acquirer is capable of paying less for the economic value of the entity (it has declined or will declined) which it really doesn’t want, save the referral market or incremental patient volume which it desires. The value is purely found in the market share or referral base, not in the economic metrics or financial value of the entity. For a larger provider, acquiring smaller agencies within areas that the larger provider presently doesn’t serve or undeserves is the goal. The “merger” is almost protectionist; protecting profit margins or revenue streams that are shrinking by increasing volume and thus (hopefully), more overall revenue, equalizing the lost revenue once gained per encounter during periods of higher reimbursement.
In the next post, Part II, I’ll review what is going on in the hospice industry and why the Gentiva/Odyssey transaction is significant in terms of a harbinger of activity yet to come.
Five Things Every Administrator Should Focus On
I had a phone conversation earlier today with a friend and colleague (he’s part owner of a rehab consulting and management company) and as we talked, the conversation reminded me about the host of issues facing health care administrators. Our conversation flowed to long-term care and specifically, SNFs (he spends a lot of his time with SNFs) and the work his firm is involved with. We kicked around some ideas and as our conversation concluded (hopefully with a golf date soon to be set), I did some thinking.
My friend always tries to get me to do “more” speaking engagements, particularly at conferences and trade association meetings and in this case, he was trying to convince me that the discussion we had was great information that “everyone should know”. Oddly enough, I agree but as time doesn’t always permit me to head out on the speaker’s circuit, it made sense to “boil down” our conversation into a quick written summary.
Health care administration, like any leadership discipline, should be (about) one-third current operations focused and two-thirds future operations focused. I realize, having done the job myself for over twenty years, that some days or even weeks bend this ratio but over the long-haul, in order for an Administrator to lead (regardless of title), he/she must be willing to step a good distance forward to lay the ground work and strategies for “what will be”. In other words, effective administration is about understanding what is going on in the industry, how events or policies, etc. not yet in effect will alter the business, and developing plans and strategies to move the “current” toward the “future’. In simpler language: Effective health care administration is principally about planning. Effective leaders have a running gap analysis in their heads; inherently understanding the current status of operations and matching that with what is yet to transpire. Leaders with tenure have a bit of advantage as they should innately understand historically, how change roles out with new government policies, changes to reimbursement, etc. The experience of having been through numerous changes in the business can’t help, if matched with effective planning abilities, but provide a clearer understanding of how to migrate current operations to the next required level of operations.
Synthesizing from my view, what has and is happening in health care today and what I see and hear about long-term care administration and the organizations in the industry, I hashed out five things (issues, concepts, etc.) that every Administrator (senior leader, etc.) should focus on. Obviously, the list could be expanded but in reality, focus on the key or critical five below will produce the kind of results administrators desire and organizations require.
- Medicare and Reimbursement: Regardless of any white-noise concerning possible delays or advances in the implementation of RUGs IV, MDS 3.0, etc., the path is laid and the dates will occur sooner rather than later. Getting clinical and billing functions up-to-speed, educated, and ready to roll is an absolute necessity. During this process, I’d analyze a whole series of issues and begin to lay the ground-work for any related changes to the present course of business, such as;
- What is the potential impact on my Medicare revenues?
- How is the revenue impact related to my current case-mix?
- Should I begin to adjust my case-mix via different marketing strategies or the implementation of some new clinical programs?
- Does my software/IT systems support new forms, new charting/documentation requirements, assessments, and billing documentation? If not, what is my vendor doing to get us there and when will they be ready?
- Big changes are about to occur in therapies particularly and what, if I am using an outside vendor for therapy, are they doing to be ready? Does this impact our contract and our overall care delivery in any way? Is now a time to consider transitioning to an in-house therapy service?
- Are we, as an organization, actively engaged in communicating what is happening to outside vendors, referral sources, etc.?
- Do we have a fully integrate project plan, budget for change implementation (training, software, etc., costs), and a methodology in-place to review, change and update policies, procedures, forms, etc.? (Names need to be involved, dates set, milestones identified, time set aside for review, time set aside for meetings, etc.)
- Compliance: This is a huge issue today and it continues to grow as health care reform upped the ante once again. There are at least a dozen or more key concerns every organization should have in this area and very recent policy and legislative activities have added to the list. Below is a sample of what should be at the forefront of every administrator’s compliance focus.
- Billing compliance, particularly Medicare. Health care reform and the focus on the part of Medicare to save money via reduction of fraud, waste, and overpayment is a hot topic now. I routinely encounter way too many administrators and organizations that have pushed the revenue per diem issue far too much under Medicare, leaving enormous areas of exposure for recovery actions to occur. In other words, I’ve seen way too much routine high level rehab coding, length of stay elongation, etc. than what the clinical documentation supports. Too often, I encounter MDS coding to substantiate rates of payment and then when the resident’s chart/record is reviewed, the documentation is far different than what appears on the MDS. Administrators need to be wary, even though the revenue numbers look good (perhaps too good), of questionable billing activity under Medicare.
- To the point above and addressed in a recent post here, all organizations should have a compliance plan and now, under health care reform, SNFs are required to have one in place this fall. Compliance is about not just being “compliant” with survey and certification rules but also with other federal laws such as Stark and the False Claims Act. There is no reason that any organization participating in Medicare and Medicaid today does not have a fully developed compliance program and a process for routine audits to preemptively identify,correct, and disclose potentially illegal activity – the ramifications under the law for providers are far too severe. For more information, see my post titled “Stark, Health Care Reform, and Updated Compliance Requirements”.
- There are new privacy and security requirements under HIPAA that organizations need to have in-place. For more information, see my post titled “New HIPAA Provision Now in Effect”.
- Survey and certification requirements such as the QIS are here and the government is in the process of revamping the Five Star rating system. As much as I think the survey and certification process is onerous and unrelated to true care quality, administrators need to understand the peril of poor performance and sub-standard quality. Keeping an up-to-date and clean survey history is vitally important in order to avoid fines, public relations problems, rising liability insurance costs and potential litigation problems.
- Patient/Resident satisfaction is an area that too many administrators believe is unrelated to compliance activity; think again. I see way too many facilities that end-up in compliance problems as a result of resident and family complaints. Dealing with satisfaction across the board is an “ounce of prevention” compared to the “ten pounds of cure” that are required when unsatisfied customers complain to the regulatory authorities.
- Transparency and disclosure are two new buzz words that every administrator should incorporate into operations. In today’s arena, disclosure of ownership, governance, staffing, etc. are the new rules of the road and there is no reason any longer not to publicly embrace a plan of transparency and disclosure of all this information and more.
- Labor Relations: The largest allocation of resources in health care is for staff via wages and benefits, etc. yet I still see too many antiquated labor relations approaches that produce high levels of turnover and poor productivity. To me, it is time for health care to adopt labor relations strategies found in other industries and in companies that have world-class employee productivity, retention, and commitment. Administrators can immediately and positively impact the bottom-line by simply focusing on improving retention, hiring practices (avoiding panic hiring and using better matching strategies), improving supervisor training, removing antiquated pay structures and reward systems, and adopting programs and policies that incorporate employees into the overall strategy and direction of the organization. Stable staff equals better compliance, higher customer satisfaction, higher productivity and lower labor costs (less turnover, less recruiting costs, etc.).
- Risk Management: Leading an organization forward is about identifying “risks” that are inherent in the business and developing plans, strategies and processes to mitigate the impact of risk on the organization’s performance. Though of another way and using a phrase I like and used to use frequently, it is about avoiding the expenditure of “stupid money”. Stupid money is money spent unnecessarily on litigation defense, turnover, higher levels of insurance costs such as liability and worker’s compensation, on agency staff or outside pool staff, on fines and forfeitures, etc. These are all expenses associated with identifiable and known risks and risks that can and should be mitigated by appropriate planning and system implementation. Extremely effective risk management tools and practices don’t require large amounts of investment or even, elaborate policies and procedures.
- The best defense is knowledge – knowledgeable and well-trained staff, active and capable management. Risk management is practice best by management being where the “risk” is, not tucked in an office or tied up in too many meetings with limited purpose, no real agenda, and no specific outcome.
- Using patient/resident satisfaction systems is simple and highly effective at identifying areas of potential problems or risks.
- Using benchmarks available from various industry sources to review facility or organization specific indicators against industry norms.
- Using programs of “gain-sharing” and other incentive compensation practices, tied to compliance, tied to satisfaction, tied to workplace accidents, absenteeism, etc.
- Keeping employees informed regarding organizational policies, standards, plans, etc. Employees involvement and input is a very simple and effective way to mitigate a whole series of risks.
- Using periodic audits to check documentation against billing, patient results and outcomes against set standards (infections, wounds, falls, etc.) and compliance with company policies and procedures.
- Education which can occur via very cost-effective means such as webinars, books, staff to staff training, trade association meetings, etc.
- Purposeful Activity: The famed educational philosopher John Dewey wrote a great deal about “purposeful activity” or the time spent engaged in seeking a desired outcome. For Dewey, this involved the application of the scientific method; the search for answers and insights via a systematic and “purposeful” approach. Health care is a bureaucracy and I watch administrators create additional bureaucracy within their own organizations either in defense of the existing bureaucracy or as a symptom of the bigger bureaucratic problem. I’ve never frankly, understood why health care is so fond of so many committees and meetings that accomplish virtually nothing and consume layers of management staff ad nauseum. Purposeful activity for an administrator is about simplifying as much of the operations and business processes as possible and sticking to some real tried and true managerial and leadership approaches.
- Every meeting must have a purpose, an outcome including a “next step”. No meetings or committees should ever be held or created without a purpose and an outcome and the outcome is never to “meet again”.
- Every manager must have enough authority and be charged with making and held accountable for decisions. Managers that are not accountable for “things” and don’t make decisions are enormous wastes of money and enormous sources of risk. Organizations that allow managers the cover of committees and meetings are wasting enormous amounts of productive energy and time.
- Formal meetings and committees should be entirely focused on two things and only two things; compliance (required reporting and information sharing) and addressing what is “new” or going to be “new”. The latter is about change and developing new strategies or learning, etc.
- Meetings must be brief and have requirements for preparation prior to the meeting and work or tasks to accomplish post the meeting. Discussions don’t require a “meeting”.
- Limit communication via voice mail and e-mail and require people to present their issues in person. Voice mail and e-mail have become the bane of office productivity as they produce “cover”, allowing people not to address what needed or needs to be done. (The famous, “I sent you an e-mail on that”).
- For an administrator, the most purposeful activity is planning and strategizing; taking in information, developing plans and strategies, and assessing the same in light of current operations. All activity, or at least as much as possible, should be focused on improving what exists today, matching future industry trends and requirements with current operations and a strategy to address the future requirements, and communicating what is happening via plans, performance indicators, etc. The test is whether the staff under the administrator can answer, “what happens next and why”.
Strategies for Accomplishing New Development or Major Capital Projects
One of the focal areas of my consulting practice/work is assisting health care organizations in accessing sources of funding (securing financing basically) for major projects and/or new development. Given the state of the economy, most specifically the capital markets over the past eighteen months, getting funding for capital projects and/or development has been challenging, though not impossible. Terms are definitely not as good (rates, covenant restrictions, and length or term of the obligation) and lending sources are far more credit adverse than two years ago. Health care, although the defaults have been low, is an eclectic industry for most traditional lenders and their lack of specialization or knowledge makes them deal “shy”. Even lenders with health care technical experience are more cautious and requiring far more information and deal due-diligence than say, two years or so ago.
Approaching a major capital project (expansion, remodeling, equipment replacement, etc.) or a new development (addition or new facility) is a daunting task and if any of the cost involves securing financing, below are some strategies or tips for project analysis and due diligence that I have found are virtual necessities to secure financing. Obviously, this information does not supplant the credit worthiness of the organization doing the borrowing or in other words, bad financial ratios equals bad terms or today, no credit.
- Completion of an Internal Rate of Return analysis at “current” market cost’s of capital. The analysis needs to include sensitivity adjustments/tests as well. If the project is such that the expenditure will not add revenue (major equipment or even some remodeling projects), the Internal Rate of Return analysis uses assumptions of savings and depreciation expense as the source of “revenues”. In other words, you begin the first phase by using a life-cycle cost analysis as the means to produce the “net inflow” assumptions (savings, etc.) for the IRR.
- Much of health care, especially the reimbursed and clinical segments is very much a fixed-revenue prospect. I see providers get caught all the time trying to justify remodeling and even down-sizing projects as “revenue improvements” and it doesn’t fly. It is possible to produce or to generate new or improved “cash inflows” from these types of projects but creating assumptions for this improvement and the resulting new inflows requires careful thought and impartial analysis. Suffice to say that if the project involves remodeling or down-sizing, getting to the point of improved net inflows as a result of the project means something had to change on the expense side (especially again, if the bulk of the revenue related to the project is fixed reimbursement), efficiencies have to be clear and demonstrable, and/or the use of the remodeled or down-sized space is for a new product or service line that will generate incrementally higher revenues or reimbursements per patient day.
- On new developments or expansion projects, the largest mistake I see made is around the assumptions of occupancy and revenue generation. The assumptions used need careful analysis and should be weighed against comparable provider/market experiences whenever possible. This is critical in the sensitivity testing portion of the IRR – stressing and testing the new revenue assumptions. Some very important revenue assumptions cues are;
- Reimbursement rates and the corresponding revenue assumptions need to fit the current legislative and policy trends. For example, health care reform just passed and Medicare is looking at $500 plus billion in cuts. Medicaid is another issue and state budgets and forecasts of rate cuts or rate stability are an issue. Don’t use assumptions that don’t follow the present health policy issues.
- Dramatic changes in payer mix and product line mix are unlikely to occur as rapidly as I see providers try to project. If for example, your payer mix has been predominantly Medicare, some Medicaid and some private insurance (65/25/10), it may change dramatically for a new development in a new market location but not for an addition to an existing location. In reality, just by “building it”, they won’t “naturally come”. Marketing strategy is the key to this change but in the analysis, the assumptions of any major revenue changes as a result of a project need to be smoothed.
- Capital Budgeting techniques and analysis need to be performed for major equipment replacement or infrastructure improvements. Alternatives to the project need to be reviewed and financial analysis of the costs and operating impacts of each alternative need to be completed. Again, interest rate/cost of capital assumptions, even a cost of cash assumption (investments of internal cash v. cost of debt), need to be integrated into the analysis. Lenders want to see that the provider has thoroughly evaluated analytically, the alternatives for each proposed capital project.
- Benchmark your project against like projects and your numbers against industry ratios. There are a number of sources for industry ratios by health care segment from Fitch, to trade associations, Ziegler, BB&T, etc. I typically will add comments and a brief discussion of salient differences when the ratios and results are positive or negative to industry standards. I also like to incorporate a pre and post project re-cap.
- Discussion and information on Market and Industry Trends is important for lenders to understand how the project fits into the overall market, into your organization’s position within the market and where the organization views the project in light of current industry trends. Remember, the policy landscape is quite volatile and lenders are aware of the volatility. Explanations of a thorough understanding of this volatility and how the project and organization plan fits in light of this trend is imperative in order for lenders to have a grasp of the organization’s project management and financial and strategic management capacity.
- Market discussions should focus on where the organization ranks competitively within a market area, where the organization’s target market is, how that market is changing, and how the project responds to the market needs, its market position, and to the changing demands within the market location. I also like to incorporate sales advantages, competitive advantages, quality information (as pertinent), customer satisfaction information, and any commentary on competitors.
- Industry trend discussions focus on what is happening in the industry and how the project relates to these trends and why. If the project is for example, an infrastructure improvement (roofs, mechanical systems, etc.), it is entirely appropriate to discuss the average age of physical plants in the industry, deferred maintenance and or average capital spending trends, etc. If the project is an addition, the discussion should focus around meeting customer needs, new products and services that will be delivered and how completing the project either keeps the organization up-to-date with industry advances or propels it ahead of the pack. Other industry information that is important to discuss is;
- Major health policy trends such as reimbursement rates, new regulations or requirements (e.g., mandates for sprinkler systems in SNFs), and as applicable, changing patient/customer needs. It is important to relate these trends to the project and as much as possible, across the anticipated horizon that covers the length of the credit. For example, if reimbursement changes may positively or negatively impact the organization’s cash flow, a frank discussion of this impact is necessary along with how the organization is planning to address the impact. The impact, of course, plus the organization’s assumptions of impact on the project and the organization should be incorporated in the financial analysis.
- Industry information regarding payer mix trends, length of stay, service utilization, labor costs, etc. may or may not relate to the project but whenever it does, I like to point it out and moreover, discuss briefly the relevance and the distinctions.
- For New Developments market and demand studies are critical. I like to see demand studies that test demand at given prices, not just global demand. Global demand assumes price doesn’t matter or location and service-depth is less relevant and in reality, it may be the difference between success or lack of success. Although a bit esoteric, I am even in-favor of incorporating a bit of “central place” or “location” theory in my market and demand analyses. This type of analysis looks at key project characteristics or specifications and analyzes how strongly they are met or reinforced by the development location. For example, if proximity to a certain referral source is a key project specification, I’d analyze this in relationship to market size and perhaps, existing referral patterns. I’d then look at the cost of development and location (site) in relationship to the requirement that the location is proximal to a referral source. In some cases, the cost of development may be to such a degree greater that an alternative location actually becomes preferrable from a financial feasibility stand-point. Finally, market analysis needs to define the primary markets, the competitors within the markets, the socio-economic condition of the market location (population growth, income/wealth, age,education, etc.) and the market trend. I will also address factors that may positively or negatively affect the project’s completion and revenue assumptions (occupancy/lease-up, etc.).
As daunting as the above may sound, it is nearly a pre-requisite to access capital for large capital projects and/or new developments at acceptable terms (again, assuming the general financial profile of the organization is solid). While each project is different necessitating more analysis in one area and less in another and each organization is different, I’ve found that lenders today prefer more on-point discussions, even if they seem trivial, than less. Building a solid case, financially and strategically, for the project is critical in order to achieve success in the capital markets and frankly, in order for the project to achieve the organizational objectives.
Hospice Census Issues: A Possible Trend with a Twist?
Lately I’ve been running across intermittent publications/blog posts, etc. regarding a general decline in hospice census. At the end of this post, I’ve attached a couple of links for anyone who wishes to see some examples of what I’ve been reading. Naturally, being the curious consultant and health policy junkie that I am, I started to do a bit of digging. What I found was rather interesting and perhaps, indicative of another trend that may soon emerge.
In my prior career as a health system CEO, I first became seriously interested in hospice in the mid-eighties. The impetus for this was my VP of Religion and Pastoral Care who happened to train with Dr. Elizabeth Kubler-Ross and was (still is actually) a highly respected expert in the field of spirituality, bio-ethics and end-of-life care. Over the years, he often engaged me in debate regarding the high cost of institutional care at the end of life. He also pointed out how inefficient and somewhat demeaning it was for individuals to die in an institutional environment. In our system at the time, we experienced hundreds of deaths annually, the majority in SNFs. With the enormity and complexity of all the SNF regulations, it was extremely difficult to provide lower cost, more creative and thus, more humane end-of-life care in a nursing home. To further complicate matters, like most SNFs at the time (and even still today), our beds were generally configured as semi-private; hardly ideal to accommodate visitors, guests, and privacy.
To resolve the above issue, we started a hospice in the early nineties. We took a different tack however, developing a place of residence and a site for inpatient care initially. As our focus was principally geriatric, we saw the greatest market need as an alternative site to hospitals or SNFs; a hospice site that would provide a lower cost of care, a private room and incorporate all of the latest knowledge in palliative care. We knew at the time that the majority of our patients died in SNFs and hospitals simply because there was no real alternative and given the age of the patient and the lack of willing or able caregivers to accommodate death at home, home hospice was not the solution. To make a long story short, we quickly expanded to a second location and incorporated a home program within our hospice division. Oddly enough, at the time, we became the first free-standing, inpatient and residential hospice in Wisconsin and the sole “geriatric only” hospice in the State and the in the nation. Also at the time, there was one inpatient hospital unit and one free-standing residence. When I left my position as CEO to form my consulting partnership, there were five additional inpatient/residential hospice options and nearly a dozen home hospice options (some related to the inpatient/residential options).
To the point of this post and my observation: Hospice census is getting soft for a number of reasons but the primary driver of the decline that I can verify is too much supply for what is truly, an undeveloped demand. The primary payer for hospice care is Medicare and as I have written in numerous other posts, Medpac and CMS both have targeted hospice as an industry in need of reform. Their scrutiny is born out of a steady increase in the benefit utilization, rapidly increasing lengths of stay, and an increase in the number of hospices that have SNF contracts. To Medpac and CMS, this means potential abuse and to me it means too much supply chasing too little “real” demand. This is particularly true in a down economy where potential demand ( the universe of all terminally ill individuals at any one point) is somewhat disconnected with the health system due to unemployment related job losses and lack of insurance and other providers compete for a scarcer share of patient days.
The difficulty of gauging the true demand for hospice in the U.S. is that the health system presently in place, somewhat restricts the growth of legitimate patient referrals. Combine this with a traditional cultural and religious predilection which values life and technical advancements focused on the restoration of life and hospice becomes relegated to a choice paired with futility. Physicians, the gatekeepers of hospice referrals, are fundamentally incented to do everything (financially, legally, etc.) other than to make the referral. Patients and their families, ignorant about hospice, often know nothing about the benefits available under Medicare, the care that is delivered in a hospice setting, or that a referral to hospice can occur (and should) significantly in advance of imminent death. Without sufficient information about hospice, save the stereotypes, patients and their families must rely on a health system that actually competes against making referrals. While I know this sounds rather harsh, the reality is that most hospitals and physicians are pushed by economic factors, especially of late, to maximize treatment, to maximize tests, and to maximize patient contact that correlates to higher reimbursement, even if the same will in all probability, not change the ultimate outcome: death. A phenomenal source of data on this very subject is available from the Dartmouth Atlas (http://dartmouthatlas.org/).
While I cannot universally verify a trend of softer census, I can verify that census issues are occurring in a variety of hospices, particularly in larger urban and fully developed suburban areas. From the limited research I did conduct, this issue is not new and in fact, has likely been going on for some time. Where census trends are up or a bit more stable is typically in rural areas, fast growing areas or as a result of new or expanded nursing home and assisted living contracts (the latter a somewhat new but growing phenomenon). Areas that have been hit the hardest in the economic downturn are logically, areas with the greatest number of hospices struggling to capture census. Areas that are truly over-bedded in terms of SNFs and hospital capacity are the areas where the “soft census” trend is evident back to late 2008 and early 2009. Not too surprising, these over-bedded areas will not recover any time soon, if at all.
A new trend that is likely to emerge in the immediate future is consolidation or renewed merger/acquisition activity. Industries that have reached a growth plateau or stage of maturation provide marginally higher opportunities for businesses within the industry to consolidate, especially if the overall, longer-term growth prospects remain solid. I like to think of this phase or stage as a period of digestion. Hospice has grown markedly in the last decade, so rapidly in certain areas that the market area is or was saturated and the recent downturn in the economy served to illuminate, how saturated the market really was. In the period or time when the economy was advancing, a hospice could survive on the margins; the leakage that hospitals, physicians and other providers were willing to forego as other business or patient encounter opportunities were perceived as more valuable. As the economy tightened and reversed, the queue of “other more valuable” business evaporated and all remaining revenue generating patients became valuable again, closing the gaps that once leaked patients deemed “played-out”. This cohort of marginal patients (marginal only from the perspective of revenue opportunities) was a few years ago, the life-blood of a number of hospices in an over-developed market. As all providers are now willing to utilize even the most marginal patient encounters today, marketing or census development activities alone will not generate sufficient new referrals (they simply don’t exist) and the remaining strategy is to merge or be acquired.
I would not be surprised to see a steady growth pattern of hospices affiliating with other hospices, either via merger or outright acquisition. The general prospects for the industry are solid but the intermediate future with likely Medicare payment reform, greater OIG scrutiny and new referral and relationship regulations means that marginal hospice providers probably can’t survive sans an affiliation of some sort. Additionally, while the market will grow slightly year over year, I believe hospice has reached a point of maturity as a service or product line. It is truly a niche’ product, one not fully embraced by physicians or for that matter, the general market of patients and their families. As long as the economic incentives remain heaviest on “cures” and the cultural trend continues to embrace life-elongation at all cost, hospice will remain a secondary option for care, offered too late in the end-journey to a population, woefully uneducated and unaware of how valuable a care option it truly is.
The following are a few links to articles I read, prompting this post.
http://www.kaiserhealthnews.org/Columns/2010/February/021810Gleckman.aspx
http://growthhouse.typepad.com/larry_beresford/2010/03/are-hospice-enrollments-declining.html
http://palliativemedicine.blogspot.com/2010/02/can-hospice-and-palliative-care-escape.html
Medpac Report to Congress: 2011
Earlier this week, Medpac (Medicare Payment and Advisory Commission) released its report to Congress. Primary among Medpac’s duties is its provision of recommendations regarding payment updates under Medicare. Below, I have broken out and summarized the recommendations.
Hospice (the points below the first bullet are continued recommendations from 2009)
- 2011 rate is the market-basket less a productivity growth adjustment (per the Commission) netting a 1.1% increase.
- The Commission recommends that Congress direct the Secretary to change the Medicare payment system to incorporate higher payments at the beginning of the stay and lower payments as the stay goes longer, with the exception of an increasing payment at or proximal to, the time of death. The recommended transition period is 2013.
- The Commission also recommends that the Secretary require a physician or advanced practice nurse visit prior to the 180 day recertification period with corresponding documentation from the physician (or alternate) that the patient’s prognosis remains terminal with a corresponding note providing clinical substantiation of such prognosis.
- The Commission recommends that the Secretary direct the Office of Inspector General to investigate the relationships (primarily financial) between hospices and skilled nursing facilities and assisted living facilities that lead to longer stays and increased benefit utilization. The focus is to determine the appropriateness of hospice care provided within these settings by certain hospices that continue to demonstrate unusual referral and utilization patterns.
Skilled Nursing Facilities (SNFs)
- Eliminate the payment update for 2011
- Congress should establish a budget neutral quality incentive correlated to avoidable hospital re-admission rates and require SNFs to conduct patient assessments at admission and discharge.
- Require the Secretary to direct SNFs to more accurately report diagnostic and service-use information in claims (claim to include dates of service, detailed diagnosis information, and services provided since admission recorded separately in the patient assessment). The Secretary should also require SNFs to report their nursing hours in the Medicare cost report.
- Medpac also recommended (continued from 2008) that the Secretary revise the PPS payment system by adding a non-therapy ancillary component and eliminate the current therapy component, transitioning thus to a therapy payment based on predicted patient care needs. The Secretary should also adopt an outlier policy with corresponding payment.
Home Health
- Eliminate the market basket for 2011 and direct the Secretary to rebase rates to reflect the average cost of providing home care services.
- Direct the Secretary to modify the home health payment system to protect patients from reduced quality of care during re-basing. The new payment system should include risk corridors and blended payments (prospective elements with cost-based elements).
- Direct the Secretary to identify categories of patients with the greatest probability of benefitting from home health and then develop quality measures for each category.
Inpatient Rehab Facilities
- Eliminate the payment rate update for 2011
Long-term Acute Hospitals
- Eliminate the update for 2011 for inpatient rehabilitation services.
Physicians
- Update payments for physician services by 1% for 2011
- Congress should establish a budget neutral payment adjustment (up and within the current fee schedule) for primary care services provided by primary care physicians.
Hospitals
- Increase inpatient and outpatient rates by the current market hospital market basket, concurrent with the start of quality incentive payment system.
- In order to re-capture overpayments to hospitals, the Secretary should reduce payment rates (inpatient) by the same percentage (not to exceed 2%) for each year beginning in 2011, continuing to 2013, or until the over-payments are recouped.
My only comment regarding the Medpac report is that it is a continuation of the theme from prior years where the Commission is recommending payment reform, stabilized increases and revised payment methodologies. These recommendations go hand-in-hand with the Commission’s consistent determination that Medicare, primarily in Hospice, Home Health and SNFs, has been overpaying for care. I firmly believe that Congress will follow most of the Medpac recommendations, sans an implementation of health reform which would likely incorporate (the current versions do), much of Medpac’s recommendations.
To read the full report, click on this link. http://www.medpac.gov/
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