Policy and Politics – Federal

Medicare SNF Cuts: Fact, Fiction, Probability

In early May, CMS released its proposed rule for FY 2012 concerning Medicare PPS reimbursement for SNFs. As most followers of the industry from investors, to operators to developers know by now, CMS dropped a “bomb” to the industry indicating bluntly, a warning of a parity adjustment (reimbursement or payment reduction) of 11.3% or $3.94 billion. In typical convoluted CMS fashion, the logic behind this foreboding news is scattered; an analysis of the agency’s inability to adequately anticipate provider behavior, utilization patterns, and to appropriately create a reimbursement mechanism that ties the cost of care required by current SNF patients with the costs and delivery systems necessary to provide the care.

Initially, the interpretation from many inside the industry was that CMS was overreacting, using only one-quarter’s worth of claims data to substantiate a “sky is falling” conclusion. More recently, six month’s worth of claims data became available and analysis proved the trend correct and even a shade worse or better stated, more prevalent than originally assumed. In short, the implementation of MDS 3.0 and RUGs IV missed the budget mark (budget or expenditure neutral) by $2.1 billion or 16%.

In the last week to ten days, the OIG (Office of Inspector General) for CMS stepped into the debate, stating its opinion that the overpayments must be stopped immediately. Interpreting the OIG’s qualification of “immediately”, the timeframe at issue is next fiscal year. In essence, the core of the problem continues to be the structural flaws within the RUGs system predominantly, that disproportionately pays more for rehabilitation therapy than for other primary care modalities. A major intent of CMS during the switch from RUGs III to IV was a reallocation of the incentives (higher payments) from therapy to other resident care requirements. Suffice to state, the methodology failed. Below is a simple illustration of how on a pure rate basis, the RUGs III to IV therapy categories compare.

Table 1: Average Amount That Medicare Pays SNFs per Diem for Each Level of Therapy, FYs 2010 and 2011
Level of Therapy	Number of Therapy Minutes Provided During Assessment Period	Average per Diem Payment FY 2010	Average per Diem Payment FY 2011	Percentage Increase From FY 2010 toFY 2011
Low	45 to 149	$288	$430	49%
Medium	150 to 324	$369	$488	32%
High	325 to 499	$364	$532	46%
Very high	500 to 719	$418	$594	42%
Ultra high	720 or more	$528	$699	32%
Source: OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011. See 74 Fed. Reg. 40288, 40298–40299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895 (Jul. 22, 2010).

Reviewed on-the-face, it is logical to see how CMS could miss the targeted expenditure mark by the margin it has, even in-spite of the “methodology” changes that occurred in the conversion from 2.0 to 3.0 and RUGs III to IV. Providers, being logical creatures of certain habits, moved accordingly to grab the payments at the highest attainable levels or in short, fulfilled the economic axiom of, “what gets rewarded (paid for) gets done”. The expectation on the part of CMS that utilization trends would fall-off from the higher paying therapy categories, necessitating a higher re-balanced rate to negate a revenue “shock” to the SNFs was poorly thought through.

Quickly reviewing “what” occurred to produce such a variance from assumption to actual is easy. Getting to the core takes a bit more thought and digging. In summary fashion; CMS assumed that by restructuring how therapy minutes were calculated for concurrent therapy (therapy provided to two individuals) from a two-equals one basis to an equal half, would reduce the ability of providers to meet the higher per minute category qualifications, necessitating more one to one therapy sessions (the previous concurrent therapy rules allowed providers to have two people in the same therapy session with the total session time allocated to both participants equally). Similarly, CMS assumed that ending the look-back provision to establish reference dates and care requirements would more accurately stage the resident’s acuity and care needs to the point of admission (or proximally forward from admission) to the SNF. Additional tightening of the extensive services qualifier rules would also, as assumed, reduce higher RUG scores and thus, payments. Of these changes and assumptions, only the look-back period changes combined with the changes in qualification for extensive services provided any material classification changes (lower payments) though such changes were far less in total dollars than the dollar increase CMS imputed on the corresponding RUGs III to RUGs IV therapy payments. Providers however, merely switched to the remaining “open ground”, providing more therapy on an individual basis and most noticeably, on a group basis. On a group basis, minutes are counted collectively, not split in equal parts among the participants – a provision CMS did not change from RUGs III to RUGs IV. While the modifications made to the extensive services qualifier and the look-back period provision did impact providers, CMS completely misunderstood the application and prevalence within the provider community of these two provisions under RUGs III and as played-out, found that providers could still code residents into higher payment groups/categories in spite of the changes.

To understand what might happen next, one needs to look at how this mess occurred. As I’ve typically found, the answer lies in both camps; providers and CMS. In my recent work, its clear that many providers don’t understand the transition from RUGs III to RUGs IV and as I have looked at “oodles” of Medicare claims, I dare say a large number are still frought with ”up-coding” and questionable therapy-minute counting practices. This is not to say that the whole of the industry has behaved in this fashion but arguably, and CMS understands this as do both major trade associations, providers have not totally changed their business models to reflect the changes in payment systems. One needs only to look at how claims trended under RUGs III and how they now are trending under RUGs IV. The trend is too consistent to support an assumption of SNFs; a) staffing substantially more therapy personnel to capture the minute requirements via individual treatment or, b) SNFs moved a sizable share of their Medicare case-load into group therapy. The latter, while I’m certain it has occurred on a broad basis as the OIG report suggests, is problematic from a care delivery perspective for a large range of diagnoses that truly require individual therapy sessions.

CMS continues to remain fundamentally inept at developing reimbursement systems that provide adequate payment for the care and services required by SNF residents. I have yet to see, across my 25 years in the industry, any period or any system devised by CMS that didn’t under-support or over-support, one type or category of patient versus others. It is also illogical that CMS cannot develop the audit tools and claims management infrastructure that both educates providers and pre-emptively kicks-back claims clearly evidencing up-coding. I am consistently amazed at “what” gets paid and for how long. In short, CMS is apparently willing to consistently miss the mark, make wholesale adjustments and reallocation of dollars, only to over-correct past inconsistencies while producing new ones. Such will not doubt occur with this latest blunder.

While I won’t claim to have a crystal ball in terms of forecasting “what happens” next, experience and ongoing dialogue with individuals on Capital Hill and within CMS gives me some decent insights. With debt ceiling/deficit reduction talks mired in politics, it is unlikely any substantial cuts to entitlement spending are forthcoming. Senate Democrats and the President are sufficiently dug-in on cutting Medicare spending by any measurable amount thus the target on this issue (Medicare SNF spending) has moved away from the current political fracas. The remaining Washington impetus for cutting SNF reimbursement resides within CMS. In spite of the OIG’s report, enacting cuts of the magnitude suggested is a political issue. CMS can propose all the spending cuts its desires but Congress has the final say. Rarely if ever, although given today’s climate an exception may be possible, has Congress sustained reimbursement cuts of this magnitude. Synthesized, my view of what happens next, based on what I know to date, is:

Providers and their trade association are willing to capitulate to a modest adjustment in the therapy categories. This symbolic give-back will play well politically. Net of a market-basket/inflation update, cuts of 2% to 4% are possible in a “cut scenario”.
In a scenario that involves no real cuts, rates will be flat. CMS will institute additional refinements and perhaps, even re-calibrate or fine tune payments by RUGs category, moving dollars within the RUGs system, without reducing payments. In this scenario, the attempt on the part of CMS to is to “patch the potholes” and let the system itself reduce payments via tightening the requirements and re-allocating dollars within the RUGs categories.
A most probable scenario involves, as is typical, a bit of both. CMS will cut the therapy rates using some language about re-basing. At the same time, a series of corrections will be made regarding the counting of minutes for group therapy, assessment windows, etc. Overall, payments to SNFs across all RUGs IV categories will be flat or targeted as a reduction equaling 2-4%. The pull-back on the therapy RUGs rates could be as steep as 8% to 10%. Even at this level, the remaining rate will be higher than the former RUG III rate.

July 24, 2011 Posted by Reg Hislop III | Policy and Politics - Federal, Skilled Nursing | CMS, Congress, Economics, Industry Outlook, Medicare, Nursing Home, Nursing Homes, OIG, Payment, PPS, SNF, Therapy, Washington | Leave a Comment

Accountable Care Organizations: A Post-Acute Perspective

Suffice to say, I am behind in getting this post “out”. My best intentions of a month or so ago were quickly dashed by other more pressing commitments. Nonetheless, I did read the proposed regulations as produced by the Department of Health and Human Services/CMS on April 7 and worked through a stack of research on the subject of Accountable Care Organizations; loosely coined by me, the Good, the Bad and the Ugly.

In the purest of definitions, easily lost within the DHHS/CMS proposed regulations, Accountable Care Organizations (ACO) are about improving patient care outcomes and satisfaction while reducing cost or expenditures for care. At the core of the premise about “why” and “how” an ACO would work in achieving better care, higher satisfaction and lower costs are three key assumptions or “truisms”.

Best practices via algorithms and care pathways exist in sufficient supply, tested and proven, to reduce the variability that drives higher cost and lower satisfaction for a large and growing number of common patient care issues.
Satisfaction is directly correlated to increased patient knowledge and communication, reduced bureaucracy at the provider level (fewer redundant steps) and better outcomes, more directly delivered and/or attained.
Providers, properly incentivized to focus on outcomes and satisfaction will gravitate toward any and all steps and measures that improve outcomes and satisfaction and resultingly, deliver better and cheaper (less costly) care. The key is developing the right level of incentives that drive provider behavior in the desired direction.

For years, I’ve written and lectured repeatedly that bending the cost curve or lowering the overall costs of health care in the U.S. system must first begin at the core of the issue; the system of reward. A simple economic axiom defines this best; “what gets rewarded gets done”. Fundamentally, the U.S. health system has rewarded in the form of payment, procedures, pills, tests, and surgical (or surgical-like) interventions at the expense of prevention and wellness/care management. In spite of an enormous and growing body of evidence that much of the escalation of costs (steepening of the “curve”) in the U.S. is driven by chronic conditions poorly managed and lacking in early detection and prevention strategies, funding has remained skewed toward treatment practices that are technical and predominantly surgical or interventional in nature. The result is poor to minimal access for Type II diabetics (as an example) to integrated chronic care programs designed to stave-off emergency room visits, loss of limbs, peripheral vascular disease, loss of vision, etc. while access to the latest imaging technology, interventional cardiac programs and surgery ranges from good to stellar and even drastically redundant in some markets.

Knowing the above and understanding that a fluid and flourishing economy has been built around this system, the belief or premise that one can design and make work effectively, a paradigm shift such as is intended with ACOs is curious at best. Suffice to say that while I know such a premise makes sense (Accountable Care Organizations), I’m less than certain from my read of the proposed regulations and knowledge of the current system, how incentive realignment will work to first, bend the “cost” curve and second, create a necessary body of invested, at-risk stakeholders willing to place their economic futures (such that they are) in the hands of a governmental half-and-half, moving payment system. Moreover, the initial investment capital is clearly all provider capital placed at first dollar risk and the shared-savings return proposed, provides a poor return on the capital invested. This is particularly true for the post-acute elements critical in the formation of a truly functional ACO.

For an ACO at is primordial core to work (achieve the desired outcomes), hospital utilization and the most expensive clinical utilization must be diminished. Diminution of such care is achieved primarily, via three methods/interventions/actions.

Primary care available and accessible enough to create consistent early detection and provide low-cost interventions that arrest a progressing disease-state prior to an acute event that ordinarily would cause hospitalization. In the case of Type II diabetics for example, education and monitoring of insulin levels and Ha1c to create optimal therapy and patient knowledge and disease management efficacy that delays and avoids, hospitalization and interventions on a crisis basis. By simply deferring and/or avoiding, undetected and untreated peripheral leg and foot ulcers, thousands upon thousands of days of hospitalizations for amputations and/or intravenous therapy for infections can be avoided – annually.
Delivering care in lower-cost settings or alternative settings, non-hospital based, nets enormous savings. As payment today is skewed toward hospitalization and hospital-based care, patients disproportionately receive care, tests, procedures in hospital settings. A primary example of how skewed the system has been is the artificial and unnecessary three-day prior hospital stay qualifier in order to receive Medicare coverage in a nursing home. Equally as non-sensical are the present Part B outpatient therapy caps for any non-hospital based and provided therapy. I could literally list hundreds of payment and care provision inequities but my point is made.
True integration and data sharing among providers must occur and each provider must bear an incremental reward benefit and/or downside risk. If providers cannot access data fluidly on a patient population and share best practices encompassing steerage to the most cost-effective, best-outcome sources for care without fear of system reprisal, holes and gaps to effective care delivery at the best price/cost will remain too plentiful.

Taking the above into account, two major obstacles still remain in terms of successful development of an ACO. The first is patients, now indoctrinated into a system where pills, brands, certain tests, and other non-proven care modalities are expected, nay demanded. Simultaneous, this same group is famous for varying elements of non-compliance born out of a belief (though untrue) that most anything has a “medical fix” component. All the best practices and lower-cost alternative settings can’t overcome patient behavior unless and until, patients are part of the risk-benefit system.

The second obstacle, touched on earlier, is the system of reward or the model of risk-benefit. The ACO core model is one of risk-sharing; gains in the form of varying levels of saving returned to the providers willing to bear “risk” in the form of higher than desired utilization, costs, etc., or outcomes including satisfaction that are below certain pre-determined and desirable levels. The inherent fallacy within this concept is multifaceted to say the least.

As indicated, patients are a true wild-card; both in terms of behavior and health status. As the patient remains effectively detached from the risk-benefit equation, behavior is left to chance. Additionally, health status going into the population on behalf of patients is effectively unknown. In short, a “ticking coronary time-bomb” may be present (or similarly present) creating a cost and outcome explosion that defeats the opportunity of an ACO to truly deliver effective savings. The inability in the present regulations to set a path for securitizing against this risk and for truly integrating patients into the risk-reward equation (some element of cost-share broader than present) makes the attainment of long-term savings at a significant level, illusory.
For many providers (or perhaps all) the up-front investments in terms of technology and service accessibility are steep. This is dramatically so for post-acute providers as the Federal Government refuses to offer any resources for technology investment – not the case with physicians and hospitals. This is fundamentally illogical as a major element to delivering true savings is via the full use of alternative care settings – lower cost options for care such as therapy/rehabilitation, chronic disease clinics, etc. What occurs as a result of this enormous “up front” investment is a return on investment profile that is marginal to poor; in most cases (and in all that I have analyzed) below the organization’s cost of capital. Additionally, the prospective savings return is not fluid or rapid leaving providers with a self-funding equation of producing results, subsidization of investment and cash flow, netting a return that is below any other reasonable and readily available alternatives.
The sharing of incentives is impractically aligned such that the largest sources of current costs stand to lose the most while the post-acute elements stand to gain the least, though as the above occurs, the distribution is far from quid-pro-quo. Briefly: ACOs begin fundamentally with physician groups and hospitals. To fully achieve functionality and to meet the objective of better care provided cheaper, other providers core to the care continuum must be brought into the ACO. Hospitals primarily have invested heavily in the current system of fee-for-service reimbursement, building environments that return the most on investment when heavily utilized on an in-patient and procedural basis. It is illogical to assume that for most hospitals, voluntarily steering utilization elsewhere to lower cost settings or abating certain levels of utilization altogether in exchange for “shared savings” spread across the ACO players is a winning proposition. On a similar plane, the same is true for physician specialists. Interventional cardiologists will be hard-pressed to forego any elements of business financially and in honest reflection, Medicare-age patients are a major (if not the primary) source of patients. For post-acute providers, utilization should likely increase as their services are more cost-effective but as established, these providers are bit players in the ACO game and while perhaps the most effective element in controlling costs and utilization, not proportionately rewarded. Their participation for example, is all down-streamed through the ACO.

Forming a post-acute synopsis of the current ACO landscape is as simple as this: Play at your own risk. There is little for most post-acute providers to gain within the present ACO framework, financially. All gains are more market and patient-flow related. The investments in terms of technology are steep and unsupported via government funding. Similarly, the net margin attainable via an ACO that is at “risk” or participating in shared savings is less than adequate to support a return on capital investment scenario that justifies the up-front costs. Personally, I would treat ACO participation at this stage as exploratory only; a devotion of only a small investment on-par and an expectation that minimal financial gain will occur, if any.

It stands to reason that some provider elements within the post-acute industry will stand to benefit better than others if for no other reason that they are already aligned from a business perspective to do so. LTACHs could reap significant market share if they can pose as legitimate first-admit options to an acute hospital. SNFs that are and have been, operating as true transitional care providers with in-house, integrated services could become major partner players within the ACO landscape. Key however to an SNF’s viability is some reform from three-day prior hospitalization requirements and relaxation/elimination of the Part B therapy caps. Home health agencies that already have an infrastructure for electronic charting, referrals and a strong physician partnerships and hospital referral/discharge relationships are the most logical post-acute, ACO partners. The ability of a home health agency to manage a more complicated patient directly discharged from a hospital as well as bring into the home, core chronic disease management services adjunct to physician care is an ACO necessity. As today and for the foreseeable future, ACO realization or not, Hospice will remain only a bit player, if that. While Hospice is an effective alternative to more costly inpatient care when continued inpatient care and/or other procedural steps are unwarranted, getting patients, their families/significant others, and the physician community in general to openly embrace Hospice early and frequently is not going to occur simply because of an ACO. Hospice, as I have written before, is a niche’ in the post-acute continuum and nothing within current trends suggest to me that the U.S. health system and patient expectations are moving to a deeper appreciation for or understanding of, the role hospice can and should play.

June 6, 2011 Posted by Reg Hislop III | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | ACOs, CMS, Congress, Economics, Health Care Reform, Home Health, Hospice, Hospitals, Industry Outlook, Medicare, Nursing Homes, Part B, Payment, Quality, SNF, Strategy, Washington | 2 Comments

MedPac Report to Congress: 2012 Recommendations

MedPac (Medicare Payment Advisory Commission) just released its March report to the Congress on Medicare program and rate recommendations for the FY 2012 (beginning October 1, 2011). The full report is available in PDF form on the Reports and Other Documents page on this site. Below I’ve provided a summary of the key recommendations contained in the report.

Important to note about this year’s report and the recommendations contained therein is the political context in which this report will be received. Congress has often been politically unmotivated to take MedPac’s recommendations fully to heart as the same often involves program and payment reform following a path of curtailed spending. As MedPac was officially created/established as part of the Balanced Budget Act of 1997, a critical element of its charge is to monitor payment adequacy in light of Medicare’s beneficiary’s access to care and the quality of care delivered. Most notably, MedPac has gradually evolved to an organization that advocates for more aggressive programmatic reforms combined with rate reduction and/or spending reduction. For routine readers of the annual payment reports (issued in March), the opening tone within the Executive Summary section has grown more pointed regarding Medicare’s solvency issues (lack of sustainability) and the Commission’s view of Medicare and the broader economic impact it has on the global U.S. economy. Today (presently) within a House that is demonstrably pushing spending reforms and reductions and an overall Congressional environment stuck in debate regarding fiscal reforms that include entitlement reform, MedPac’s report certainly will receive more review and deliberation than in other years. Similarly, health care is a front burner issue given the politics (anti-reform) that surround the recently passed PPACA, effectively producing a wholesale shift in political power in Washington. Wrap the Washington political issues with a moribund economy that hasn’t yet established its recovery footing, significant Medicaid deficits across the States, and local political wars focused on labor unions, contracts and unfunded and/or expensive benefit packages (including health care). Summarized: The ancient Chinese proverb applies, “It is better to be a dog in a peaceful time than to be a man in a chaotic period”.

Opening, MedPac provides a quick context for their recommendations noting that Medicare’s share of the total GDP is expected to rise from 3.5% to 5.5% by 2035. More important and a point too often missed by economists and analysts is that Medicare’s cost growth is not separate from the larger health care economy as it is directly linked to other cost drivers within the health care system that today, are rising far faster than GDP growth (especially given the current and recent pace of GDP growth). Overall, including the payroll tax funded Part A, Medicare consumes 18 percent of all income tax revenue. The CMS Office of the Actuary, taking into account the purported Medicare spending reductions contained in the PPACA (see my last post on the Unraveling of the PPACA for more on Medicare and the PPACA) forecast a slower rate of spending growth – 6% vs. 9% under current law. Critical to this assumption is the realization of spending reductions totaling $575 billion as well as a more stabilized, normative GDP growth pattern combined with historic levels of employment.

Key to this year’s payment recommendations (FY 2012) is MedPac’s philosophy and charge of balancing equitable payments that maintain or improve access, redistribute payments within a particular PPS sector to improve equity among providers and/or adjust for biases in patient selection and service (the term “cherry picking” applies), correct unusual patterns of utilization (over incentivizing) and to attempt to tie payments to quality outcomes and efficient practices (pay-for-performance). The report covers 10 PPS sectors of which, I follow and work within 6 primarily. As a result, I won’t summarize or comment on MedPac’s recommendations for hospital inpatient, hospital outpatient, ambulatory surgery centers, and outpatient dialysis. Readers with interest in these sectors can download the report from my site page titled “Reports and Other Documents”.

Physicians and Other Health Professional Services: MedPac dances through this topic without adding any substantive input regarding physician fees, let alone any other allied health professions with fees tied to the physician fee schedule (outpatient therapy for example). Primarily the avoidance is due to the political “hot potato” that is the SGR (Sustainable Growth Rate) issue. Per MedPac’s analysis, overall beneficiary access to physician care is good, physicians continue to accept Medicare patients, service volume continues to grow, quality is stable, and payments for service run at 80% of the typical PPO payment for similar care (unchanged from last year). MedPac does note however that some regional problems in terms of access to primary care are present, attributable to moderately low levels of reimbursement (in some cases, half as much as payments to specialists) and the inherent flaws of the SGR. MedPac comments on the need to reform this reimbursement mechanism but offers no insight into what it may propose, merely that projected fee cuts of 25% in 2012 are untenable and as a result, MedPac will continue to work on developing alternative SGR approaches along with other formulaic options for the fee-schedule. Their overall rate recommendation is a 1% increase in fee-schedule service related payments.
Skilled Nursing Facilities: Per MedPac, Medicare spent $26.4 bilion on SNF reimbursement in 2010 and per their analysis, the majority of indicators examined showed payment adequacy. Prefacing their rate recommendations, the reports notes that the average Medicare margin for a free-standing SNF was 18% in 2009. Specifically, MedPac notes that facilities with wider Medicare margins have aggregated more days into higher paying PPS groups, particularly rehab focused groups as opposed to the medically complex groups. Additionally, provider costs remained relatively stable while rate increases paced above cost inflation. Per MedPac, successful facilities have found ways to have costs well below industry averages, high quality and corresponding high Medicare margins. As a result of these conclusions, MedPac is recommending no rate adjustment for SNFs for 2012 while recommending continued categorical revisions within the PPS to move payment focus away from rehab to clinical care – more focused on patient care needs. Additionally, they are recommending quality of care modifiers, providing incentives for high quality providers and creating rate reductions (disincentives) for sub-standard quality such as “avoidable” re-hospitalization. As required under the PPACA, MedPac is also charged with reporting on Medicaid utilization. Interestingly, their comments are boiled down substantially, indicating that total Medicaid certified beds have decreased while utilization and spending has increased. They note that Medicaid margins are negative and fundamentally, that all non-Medicare margins are negative but total margins for the industry are positive.
Home Health Services: As it has in prior reports, MedPac continues to advise that access is adequate (90% of beneficiaries live within a zip code containing a certified agency), the number of agencies continues to grow dominated by for-profit entities within a limited geography, the volume of episodes of care continue to increase (25% over the period 2002 to 2009), quality measures are fundamentally unchanged from previous years, and the major for-profit organizations have sufficient access to capital. As in the most recent prior year reports, MedPac notes that the PPS system continues to produce high margins for providers (17%), principally because payments exceed costs and growth in cost per episode remains below the assumptions used in the market basket update. Using these conclusions combined with a cautionary statement regarding discovered fraud in the industry, MedPac recommends that the Secretary be charged with re-basing home health rates over a two year period, starting in 2013 (October of 2012). Re-basing of rates would target a reduction in the therapy “incentive”, modulating more rate toward medical care while incorporating a revised case-mix system. Additionally, MedPac recommends the development of a cost-share for home health, thereby instituting a beneficiary payment for services. MedPac believes, like in other Medicare post-acute payments, that imposition of a cost-share will charge the beneficiary with more consumer awareness of the benefit and the utilization thereof. Finally, MedPac recommends that the Secretary charge the Office of Inspector General with enforcement responsibility in areas/regions where fraud has been evident, removing payments, reducing enrollment and de-certifying agencies engaged in fraudulent activity.
Inpatient Rehab Facilities: Although a relatively small segment in the post-acute continuum ($6 billion), MedPac is recommending a zero percent increase in IRF rates. They conclude that access is adequate, quality as supported by improvement at discharge is stable to improving, and as most facilities are hospital based, access to capital is not an issue. They note that the average margin for IRFs is 8.4%.
Long-term Care Hospitals (LTACH): As with IRFs, this segment is relatively small – $4.9 billion. MedPac notes that in spite of the limited moratorium placed on new LTACH and additional beds in existing facilities (July 07 to December 2012), the number of facilities increased by 6.6%; worked through the exceptions provided within the moratorium. LTACHs are not required to submit quality data to CMS though MedPac reports, based on claim reviews, that readmissions and deaths within 30 days of discharge are stable or marginally declining compared to prior years. Per MedPac, payments between 2008 and 2009 increased 6.4% despite costs increases of 2%. The average Medicare margin in 2009 was 5.7%. Within the PPACA, LTACHs are subject by 2014 to a pay-for-reporting program, though “reporting of what” is yet defined. MedPac also believes that a pay-for-performance element should be introduced. The recommendation for a rate increase or update for 2012 is zero.
Hospice: Per MedPac, hospice services received $12 billion in Medicare reimbursement 2009. In the same year, hospice use increased across virtually all demographic areas and across beneficiary characteristics. Between 2000 and 2009, the supply of hospices increased by 50% with for-profit organizations accounting for virtually the entire amount of growth. During the same period (2000-2009), the use of hospice increased from 23% of all decedents to 42% of all decedents with average length of stay increasing from 54 days to 86 days. In 2012, CMS is required to publish quality measures and in 2014, hospices are required to report on these quality measures or receive a 2 percentage point reduction in payment. For 2012, MedPac recommends a 1% rate update. As in previous reports, MedPac recommends that the hospice PPS be altered to create higher payments for days early in the stay and late (near death) in the stay with lower payments applicable during the middle of the stay. As stays continue to move slightly longer, this payment system is supposed to reflect more accurately, the intensity and cost of services provided to the typical hospice patient. MedPac also recommends that the Secretary of HHS investigate the relationships between hospices and nursing homes and the differences in patterns of referrals between nursing homes and hospices. MedPac also calls for an investigation into agency enrollment practices where lengths of stay are unusually long as well as an investigation into the marketing and referral development practices of these agencies, particularly as they pertain to length of stay. This recommendation is unchanged from last year.

March 27, 2011 Posted by Reg Hislop III | Policy and Politics - Federal | CMS, Congress, Economics, Home Health, Hospice, Industry Outlook, LTAcH, Medicare, MedPac, Nursing Homes, Part B, Payment, Physician Fees, PPS, Washington | Leave a Comment

The Unraveling of the PPACA

OK readers and requesters, I haven’t gone, as Robert Frost wrote, into the “woods lovely, dark and deep” but I have been preoccupied by work and things familial. Sadly, energy wanes as one focuses intently on the delicate balance that is juggling a frenetic work schedule, a mile of other professional commitments, travel, and family. Returning slowly to regularity in life will allow me to re-connect and be once again, more “informationally” fluid.

A major emphasis of my work has been translating health policy into actionable strategies for clients. Some efforts are rather profound and deep and others are rather functional and tactile. The latter was the case with the Medicare RUGs III, MDS 3.0, RUGs Hybrid, RUGs IV debacle, partially created by the PPACA and partially due to the lack of foresight on the part of Congress. In the end, this mess evolved to where it should have been all along – a grouper and an assessment tool that actually matched. Today, we are simply left gazing forward at what might be once CMS figures out how the RUGs IV payments are flowing and whether providers are using the system correctly. I fully expect CMS, as they historically have, to go through a series of gyrations to fine tune the payment categories, equating the new system to that which was originally intended – something that is expense neutral (or close to) for the Medicare program. History being what it is (a reasonably good predictor of future behavior), we saw and lived through a similar dance with previous PPS system versions.

Turning to the title of this post and topically, a question(s) I am asked all too often: What can we expect or not expect to happen next under the current phase-in process of the PPACA? Following the law as written would provide an answer but clearly, the law as written is unraveling as we move seemingly, day by day. Consider the following events of recent weeks/months.

A power-shift in Congress overloaded the House with Republicans and structurally, fiscal conservatives that swept into the majority on a platform of “anti-health care reform and anti-deficit spending”. As the House fundamentally controls the majority of appropriations and budget policy, funding barriers to continue the roll-out of the PPACA are certain.
Over 1,000 waivers to certain elements of the PPACA have been granted, with more forthcoming, principally targeted at giving insurers, major corporations (multi-state businesses) and recently, labor unions relief from the mandated coverage limits imposed under the law. Secondarily, states have sought relief from various Medicaid provisions that came part and parcel with the enhanced FMAP provided under the Stimulus bill (corollary to additional elements required under th PPACA). From some vantage points, Medicaid may be the 10 ton gorilla in the room when all is said and done regarding the future of the PPACA.
A series of court cases and resulting decisions have established the framework of a constitutional challenge to the law. Opinions/decisions affirming constitutionality were rendered by Democratic judicial appointees and opinions/decisions affirming unconstitutionally rendered by Republican judicial appointees. Clearly, the matter of constitutionality of the key requirement of universal insurance purchase/participation for every American will be settled only by the Supreme Court. The remaining question is “when”. If the key provision of universal (everyone must) purchase/participation is found unconstitutional, the PPACA is functionally dead.
Within the past week or so, Secretary Sebelius of HHS publicly went on the “record” in Congressional committee testimony that the financing of the PPACA included effective double-use (double counting) of the projected $500 billion in Medicare savings that is projected within the law. This, while newsworthy, is not news to anyone who read the CBO scoring, read earlier testimony from Medicare’s Chief Actuary, or fundamentally, could follow basic arithmetic logic and principles. The Medicare savings argument was flawed when first proffered on so many levels. First, the savings was phantom money in so much that it required Congress to sustain actual rate cuts while relying on finding and stopping “fraud and abuse” thereby creating savings. If in fact, the fraud and abuse savings were or are known, a 2,000 page piece of legislation surely wasn’t necessary to end the fraudulent and abusive practices (the same being already illegal) and render the savings. Similarly, Congress has no known history of sustaining meaningful spending controls on entitlements, particularly Medicare. Finally, the physician fee-schedule fix was never incorporated into the PPACA or its financial projections regarding Medicare spending – this tally alone evaporates all if not the majority of the projected savings. Suffice to say, in order to net $500 billion in Medicare savings as foretold by the PPACA and its proponents, a perfect storm unlike any ever seen in Washington would need to occur, not to mention a real current spending reduction of close to $900 billion (adding in the Medicare physician fee schedule “fix” costs of approximately $400 billion as unaccounted spending, netted against the savings to achieve a net savings of $500 billion). For those who would argue that the physician fee schedule fix won’t cost $400 billion, I humbly reply “do the math”. Congress continues to avoid this issue in real time by creating temporary patches as the real numbers inclusive of a formulaic change in the law (change away from the sustainable growth algorithm) that prevents significant fee schedule cuts for physicians will require approximately $300 billion in “new” spending. Add another $100 billion or so for the programs such as outpatient therapies that are tied to the fee schedule and $400 billion is conservatively, a solid figure. The double-counting occurs as a result of creating the phony $500 billion and using the “dollars” to create new benefits and expanded eligibility levels and programs within the PPACA (primarily Medicaid expansion). The costs of these new benefits greatly exceeds $500 billion in reality and thus, no savings will occur.
President Obama during a speech at the National Governor’s Association publicly announced his willingness to offer states greater flexibility and an accelerated date to file alternative plans to meet the PPACA requirements pertaining to exchanges and Medicaid expansion. In effect, President Obama stated that the law was still a “work in progress” and states could devise their own alternatives, provided the alternatives were as comprehensive and provided the same level of benefits as required under the PPACA. Until this revelation, states were operating under the premise that PPACA requirements dictating how Medicaid expansion would work, the exchange plan mandates for coverages, etc. were immovable objects, at least until 2014 by when, each state would have incurred enormous costs associated with implementation. The conclusion: More unraveling about to occur.
Arizona became the first state in what promises to be a growing list, to apply to the federal government for a waiver allowing 300,000 people to be removed from its Medicaid program (disenrolled). Arizona, like multiple states, saw its Medicaid enrollment explode due to the economic recession and provisions within the Stimulus Bill which provided enhanced Medicaid matches conditioned upon the creation of certain new programs of benefits and coverages under Medicaid. The “rub” today is the sunset date of June 30 which ends the enhanced Medicaid funding. By law, the money goes away but the programs and benefits it funded must be maintained by the state; hence, the need for a waiver. The evaporating Medicaid enhancement exposes the enormity of state Medicaid and other budget deficits – in Arizona, $1.1 billion total deficit and potential savings of $541 million if the waiver is granted (fully half of the state’s deficit). From a PPACA perspective, the next move in Washington regarding a request such as that from Arizona will be fascinating. A core element within reform used to achieve the coverage objectives is an expansion of Medicaid. A waiver granted to Arizona is a virtual submission on the part of Washington that state Medicaid plans and budgets are incapable of meeting the financial requirements concurrent with expansion, absent significant cash infusions from Washington (not wholly provided with the PPACA). For those of us who closely follow health policy, we’ve warned loudly and frequently that Medicaid as presently configured, is the worst vehicle to use to expand coverage. The PPACA did nothing to alter the maniacal constructs of Medicaid, its funding, and its bureaucratic programmatic tenets. It further did nothing to allocate sufficient resources to the states to support expansion thus leaving states to bear an enormous primarily unfunded mandate within their existing and growing, bankrupt Medicaid programs. Aside from a Supreme Court ruling finding the PPACA universal participation/purchase requirements unconstitutional, the Medicaid issues are a strong and close second that could cause the PPACA to completely unravel.

The above notwithstanding, the PPACA gives us a glimpse into the future of health policy and ultimately, health care financing and delivery in the U.S. Regardless of whether the law survives in whole or in part, certain elements I believe, are new realities and I have counseled clients to begin to plan accordingly.

Money is an issue and the goal of the PPACA while inherently flawed in the form finished, was to slow the growth of entitlement spending and “bend the cost curve”. This need or goal is pressing for the U.S. as entitlement spending cannot be sustained at is present level. This simply means that Medicare and Medicaid are fundamentally and completely exhausted (financially and programmatically). Regardless of form and resultant policy, reimbursement levels will remain fundamentally flat to trending down – no other way for them to go unless new tax revenues are allocated to each program (not feasible). Kicking the issue down the road as Washington and states have done is no longer an option as the “road” has ended or its end is clearly in sight. The best providers can hope for is flat reimbursement with a recognition on the part of legislators that greater flexibility from overbearing regulations is needed to help offset the revenue loss (if I can’t pay you more I can at least make it cheaper for you to operate).
Greater emphasis will be placed on finding and eliminating waste and fraud – already happening but ramped up to an even higher level. Realize that Medicaid and Medicare are self-wasting disasters by design in terms of how modern health care is delivered and financed but vigilance and enforcement is feel-good activity; results often are minimal in comparison to costs to obtain the results. Providers thus will contend with more questions, more rules for disclosure, more reporting, more probes and more audits. Clearly, the costs borne by providers to monitor and justify their billing practices to Medicare and Medicaid will rise.
Infrastructure investments in terms of technology will rise as providers will need to justify more directly, their care vs. their bills. Simultaneous (or at least proximal), PPACA provisions and other federal provisions regarding privacy, electronic billing, health information exchanges, etc., will not evaporate entirely. Providers will need to be able to communicate across functions and across related and unrelated provider organizations, patient information, quality measures, and care information (treatments plans, history, orders, etc.).
Terms and concepts brought forth under the PPACA such as Accountable Care Organizations, Competitive Bidding and Bundled Payments are here to stay, regardless of the life or death of the PPACA. They make too much sense intuitively even if the same translates poorly in federal policy. Organizations that take the “conceptual elements and goals” of things like Accountable Care Organizations and begin to develop programs and structural changes in “how” they do business will be far better off than those who believe that these concepts will die as the PPACA continues to unravel. A future where reimbursement is more closely tied to outcomes and penalties for events such as avoidable re-hospitalization, repeat hospitalizations, avoidable institutional infections, etc. is virtually certain.
A renewed focus on primary and community based medical care, prevention, and chronic care management is forthcoming – soon. Philosophically, although wrongly implemented and structured, the PPACA was Washington’s politicized attempt to create this focus. There is solid logic behind such a focus as diminution in each of these areas (or in some cases, failure to fully launch) directly correlate to rapidly rising health costs (and correspondingly high rates of expensive, preventable chronic illness such as diabetes, obesity, heart disease, etc.). Even Washington knows that ultimately, funding and enhanced payment for better primary, community and chronic disease care is necessary and smart. The problem is, as has always been the case with policy elements measured in the billions or trillions of expenditures, politics gets in the way of functionality – hence the PPACA.

March 9, 2011 Posted by Reg Hislop III | Policy and Politics - Federal | Budget, CMS, Congress, Health Care Reform, Industry Outlook, Medicaid, PPS, Senate, Strategy, Trends, Washington | Leave a Comment

RUGs IV Here to Stay!

The news we all hoped for came forth this afternoon, wrapped with a big bow just in time for the Holiday season – RUGs IV is here to stay. The House this afternoon passed a companion version of the bill passed in the Senate yesterday. President Obama is expected to sign the bill into law shortly.

The legislation calls for $19.2 billion in appropriations to make RUGs IV effective retroactively to October 1, 2010. In addition, the legislation extends the Medicare Part B therapy cap exception provision presently in place, until the end of 2011. Without such an extension to the exception process, the Part B therapy caps were set to be automatically reinstated with no exception on January 1, 2011. As part of the extension of therapy cap exception process, the legislation also staves off pending cuts of approximately 25% in Medicare payments to physicians required by the current sustainable growth formula which drives the physician fee schedule (and related Part B services such as outpatient therapies) under Part B. Without such a correction to the physician fee schedule, physician fees were set for the significant reduction on December 18 (Congress had already moved the date back to the 18th from the 1st of December).

The implementation of RUGs IV back to October 1 solves significant headaches for SNFs and CMS. As difficult as it has been for providers to get up to speed on MDS 3.0 and RUGs IV, the process was significantly complicated by the unknown of how the planned RUGs Hybrid would work and whether CMS would seek to recoup potential overpayments from providers as a result of RUGs IV being used temporarily. Many providers sought to establish liability accounts on their balance sheets for just such an event, even though estimating the liability was somewhat complex due to the lack of solid information regarding the Hybrid groups coming from CMS.

Having spoken to a number of people within CMS, the implementation of RUGs IV back to October 1 is a true gift. There were consistent difficulties in getting the Hybrid grouper to function in conjunction with MDS 3.0 and as such, a growing number of inquiries from the industry bombarded the agency expecting more information. Even more troubling was the prospect of having to deal with payment recapture; a procedural boondoggle CMS was hoping to avoid. In the end, I am confident that a number of people at CMS are rejoicing this evening.

On a final note, I wish to offer my personal congratulations to my industry colleagues and the trade associations who lobbied for this victory and to my readers, clients and business partners who required that I kept them informed and in many cases, helped me with additional information and of course, thoughtful inquiries that made me stay on top of this important issue. This policy victory was long overdue but as the saying goes, “better late than never”.

December 9, 2010 Posted by Reg Hislop III | Policy and Politics - Federal, Skilled Nursing | CMS, Congress, Medicare, Nursing Homes, Part B, Payment, PPS, RUGs III, RUGs IV, Senate, SNF | 1 Comment

MDS 3.0, RUGs IV, RUGs III, Hybrid: A 45 Day Review

Forty- five days past the October 1 conversion to MDS 3.0 and the interim RUGS IV payment groups and I still am getting a great deal of requests for analysis tools, questions on payments, liabilities, dates and rates for the Hybrid (RUGs III) groups, maps between RUGs III and RUGs IV, etc. While I lost track of how many spreadsheets I have e-mailed and how many questions I’ve tried to answer, I have managed to keep track thematically of the issues and ongoing needs of the folks that contact me. To that end, it seems appropriate to consolidate the information I have, the questions I’ve gotten (and continue to get) and the issues as I hear them and provide my readers, colleagues and clients with a forty-five day recap. Many thanks to Brett Seekins at Baker Newman Noyes who has passed along his insights based on ongoing conversations with principals at CMS.

RUGs III Hybrid

As of today, the Hybrid grouper is still not functional and CMS states that it is still undergoing development and testing. I have confirmed this from numerous sources and CMS still is providing no hard date or date range when the Hybrid grouper may be functional. Per a contact that Brett Seekins from Baker Newman has at CMS, a crosswalk between RUGs III and RUGs III Hybrid was supposed to be posted on the CMS SNF web page by today. As of now, it is still not posted but when it does become available, I will get it, analyze it and make it available to anyone who requests it. NOTE: There is no crosswalk document between RUGs IV and RUGs Hybrid although there is a crosswalk between RUGs III and RUGs IV which I have and continue to make available to anyone who requests it. Based on what I see when I gain access to the RUGs III to Hybrid crosswalk, I may be able to make some sense of a crosswalk strategy between RUGs IV and Hybrid.

Retroactive Adjustments/Overpayment Collections

This is a hot topic and one that remains very much in limbo. First, CMS has made no definitive statements on how and if, repayments or retroactive adjustments will be handled when the switch is ultimately made between RUGs IV and Hybrid. Recall that when MDS 3.0 went into effect on October 1, RUGs IV was the only grouper system that worked with 3.0 and thus, is being used to pay providers. The issue that remains is for CMS to construct the Hybrid grouper and then, to determine how and if, overpayments occurred in the interim while RUGs IV was used. The “how” and “if” determination will drive what CMS does with respect to retroactive adjustments or recoupment of overpayments. My take on this subject is that CMS is a bit politically stuck at the moment as it, like the provider side of the business, is waiting to see if Congress steps forward and retroactively implements RUGs IV as law effective October 1, 2010. This step would be huge and eliminate a ton of complications. As to how likely this is, my guess is a shade better than 50/50. Despite the present “lame-duck” session where historically, little of great significance is accomplished legislatively, a Medicare ticking time bomb exists. This time bomb has to do with the pending cuts to the physician fee schedule, an issue I wrote extensively about in late spring and early summer. Recall, that Congress created a temporary series of patches, the last creating a modest increase in the fee schedule (and related Part B services such as rehabilitation therapies) while pushing the scheduled cuts back to November 30. The cuts are a result of a law passed by Congress years ago tying the increase or decrease in physician fees (and related Part B services) to a sustainable growth formula or more simple, a formula that is based on economic growth and overall program spending in Medicare. Due to a languishing economy, the formula in-place calls for cuts in physician fees by 21% in 2010 with another forecast for additional cuts in 2011 (the current fiscal year).

Considering the physician fee schedule issue, Congress now must address this problem or face an enormous potential crisis with physicians and other providers reducing their services to Medicare beneficiaries. The good news here for RUGs IV is that legislation regarding Medicare will be drafted if for no other significant purpose than to address the fee schedule problems, leaving room for other program changes to slip in such as those involving the implementation of RUGs IV. In any other lame-duck session scenario, I would say that the chances of the RUGs IV issue being addressed would be “slim and none”.

On a final note, CMS has their hands full with getting the hybrid system in-place and therefore, retroactive adjustments are a far distant priority. Remember, RUGs III and RUGs IV are pegged at budget neutral or in other words, RUGs IV is not supposed to cost Medicare any more dollars than the cumulative outlays under RUGs III. In reality, because of the complexities of the new MDS assessment and the resultant changes to the case-mix weights that drive payments under RUGs IV, I believe CMS will spend less money initially under a RUGs IV system. It will take providers a year or two to learn the intricacies of the new system and to adjust their operations, coding and billing practices accordingly. This means that CMS will be under minimal pressure to recoup overpayments as few will likely exist. I believe a greater probability is that CMS will make a technical adjustment in their annual rate setting for SNFs in July/August next year, reducing potential increases by a small factor for overpayments during the transition period. Again, this only occurs if Congress fails to address the implementation date of RUGs IV back to October 1, 2010.

Establishing a Liability for Overpayments

Given the above discussion on retroactive adjustments, I have advised providers to prudently establish a liability for overpayment based on their Medicare utilization since October 1. Here is what I am advising people to do regarding this transition and hybrid period. First, obtain a calculator with RUGs III hybrid rates and use it to establish a liability on the balance sheet for overpayments. The calculator allows you to enter your utilization by RUGs III and/or RUGs IV claims and produces results for each payment system. I have a calculator tool that I make available. Second, run a month end manual test on your claims by using the published hybrid rates. CMS released these in August. The manual test is as easy as a quick sample of claims for the month, mapped against the hybrid categories. Where a hybrid category does not exist, use the RUGs IV category – CMS has said it will use RUGs IV categories where no RUGs III hybrid exists. Third, compare your results and adjust your liability up or down by the error percentage (how much your sample said you were over or under) for the next month and error on the side of being conservative. If in fact, Congress acts or CMS chooses not to recoup payments from individual providers, the liability simply evaporates to income once the issue is resolved. The sole side-effect temporarily, is that income is slightly understated by the effect of the liability.

Monitor Performance and Progress

Regardless of where an SNF feels it is on the journey post October 1, the number of questions I am still getting plus the number of tools that I still send out suggest that providers are still transitioning. This is to be expected given the enormity of change and the ordinary bumps in the road caused by CMS and its intermediaries. My advice is that SNFs check their progress on the transition by doing the following.

For any SNF that is using a therapy contractor or rehab company, audit your contractor/rehab company. The largest change that occurred under the switch to MDS 3.0 and ultimately RUGs IV is in the provision of and payment for therapy. Recall that the therapy company is not the Medicare Part A provider; the SNF is. Any liabilities that arise from billing problems, overpayments, etc. are ultimately the responsibility of the provider with the agreement with CMS or in other words, the SNF. I have seen tons of therapy company contracts with very limited indemnity clauses, typically not worth much in the event of a major billing probe, upcoding issues, fraud investigations or recoupment of overpayments. In virtually all of these clauses, the indemnification back to the SNF from the therapy company is for the cost of the therapy charged by the therapy company to the SNF; not for the lost revenue and/or fines and penalties that can occur. It is the SNF’s responsibility to assure that Medicare is appropriately billed and care is correctly provided and documented as assessed on the MDS. The simplest way for an SNF to assure that such is the case is to audit the therapy company’s performance. I have an outstanding partnership relationship with a therapy management firm (not a therapy company) that can provide such a service, cost-effectively and efficiently. The principals are all MDS 3.0 certified and have decades of experience as therapists in the long-term care industry. I advise any SNF that hasn’t audited their therapy provider to do so ASAP. Even for SNFs that provide their therapies via employees, it makes sense to have an expert come-in, review current practices and to provide guidance where improvements can be made. Feel free to contact me for a referral.
Periodically, check your utilization patterns as occurred under RUGs III and now, under RUGs IV. Use a crosswalk tool to see exactly how your claims under RUGs IV are trending compared to what they were under RUGs III. In 45 days, a significant change should not occur as for most providers, case-mix evolves rather slowly. If you are seeing big jumps or changes, something is amiss (for example, Ultra High rehab patients should still conform accordingly under the RUGs III method and then group accordingly under RUGs IV).
Monitor your MDS completions and the time it is taking to complete the assessment. MDS 3.0 is heavily driven by interviews and accordingly, a provider should see a shift in time taken with direct patient interviews. Likewise, the ultimate shift under RUGs IV significantly changes therapy minute counting, especially concerning concurrent therapy. Provider should see movements toward more individualized therapy time and elimination of look-back assessments.
Sample some new admissions looking for a match between clinical charting and MDS coding. What is being coded on the MDS should correlate tightly with what is reflected in the resident clinical record. If there is a gap, time for re-training.

Tools

I have a number of tools that I can forward to make the analysis, budgeting, forecasting, checking, etc. easier. For example, I have current Hybrid rates, RUGs IV rates by region/location, a RUGs III, Hybrid and RUGs IV calculator by region/location, a RUGs III to RUGs IV crosswalk and hopefully soon, a RUGs III to Hybrid crosswalk. Feel free to e-mail me and request any or all of these tools or comment to this post with a valid e-mail address and I will get them to you ASAP. My e-mail is Hislop3@msn.com. Likewise, feel free to drop me a question and I will do the best I can to answer it or point you in the right direction.

November 15, 2010 Posted by Reg Hislop III | Policy and Politics - Federal, Skilled Nursing | CMS, Hybrid, MDS, Medicare, Nursing Homes, Payment, PPS, RUGs III, RUGs IV, SNF, Therapy | 3 Comments

September E-News

My firm’s E-Newsletter for clients and friends was posted on-line today at http://apexhealthcareconsultants.info/2010/10/01/ In this issue;

October 1: SNFs, MDS 3.0 and RUGs
Economic Outlook
Compliance Updates
Fourth Quarter: Trends to Watch

October 1, 2010 Posted by Reg Hislop III | Assisted Living, Home Health, Policy and Politics - Federal, Senior Housing, Skilled Nursing | Apex Healthcare, e-news, Grubb & Ellis/Apex Healthcare, newsletter | Leave a Comment

RUGs III to RUGs IV: The Core of “Need to Know”

In the past month with October 1 looming closer, I’ve been fielding lots of questions regarding the transition from RUGs III to RUGs IV. Instead of listing the questions and trying to recap my answers (my memory is good but not that good), I’ve settled on an overview or “summary”; the core of what SNFs need to know or if nothing else, get up to speed on quickly. To organize this post, I’ve used headlines for expediency.

Overview: Difference Between RUGs III and RUGs IV

Simply put, the major difference applies to therapy at the expense of nursing or clinical care needs. CMS became concerned that changes in the SNF population and patient needs altered industry practices and the allocation of resources, principally away from clinical nursing to rehabilitation therapy. Via the engagement of 205 nursing homes across 15 states, CMS completed a time study to analyze the required resources provided to patients versus the clinical needs of patients. The end result was an update to RUGs III known as RUGs IV. RUGs IV consists of 66 groups divided into 16 categories (two were added) versus 53 under RUGs III. To utilize the RUGs IV groups for payment, CMS revised the standardized assessment tool known as the MDS to version 3.0. The final implementation rule published by CMS includes assurance that in calculating RUGs IV, the goal of payment parity is maintained. In other words, the historical distribution of total payments to SNFs, based on 2007 claims data applied to RUGs IV, creates the same level of total PPS expenditure for SNFs as would occur under RUGs III. Of course, this is not an assurance to any particular SNF that upon transition, revenues under RUGs IV will be equal or greater than revenues received under RUGs III. The average rate, per CMS under RUGs IV will be $431.71 compared to $420.42 under RUGs III.

Financial Impacts Under RUGs IV

As with all changes of this magnitude, there are or will be, winners and losers. The losers in terms of financial impact are facilities that have run high levels of non-clinically complex rehab patients, treating on a concurrent therapy model. Clearly, the bias under RUGs IV is for facilities to provide one-to-one therapy. Under the concurrent therapy rules, the total treatment minutes are divided between the two patients (max that can be treated concurrently is two). For example, one hour of therapy equals 30 minutes per patient. The clear impact is that overall treatment minutes are reduced, reducing the RUG level and/or the SNF will need to increase the overall amount of therapy provided to patients (not practical or clinically viable) concurrently. For example, an ultra high rehab under RUGs IV is divided into three groups based on ADL scores; RUC, RUB, and RUA. The requirement, regardless of the ADL score, is for the resident to have a rehab diagnosis requiring a minimum of 720 minutes per week, receive 1 discipline 5 days per week and a second discipline 3 days per week. Doing the math, meeting this criteria with concurrent therapy is virtually impossible. Via CMS’ own analysis, the predicted percentage of patients that fall into RUC, RUB, and RUA under RUGs IV vs. RUGs III declines from 17.8% of all days of stay (RUGs III) to 8.9% of all days of stay (RUGs IV). Not surprising however, is that the rate does increase under RUGs IV for these groups by an average of more than $100 per day. While contract therapy companies will give me continued grief for saying this, facilities that have contract therapy providers fall predominantly into this risk category; much heavier emphasis on concurrent and group therapy treatment models as a means of maximizing staff resources and maintaining high levels of productivity (benefits to the contract therapy company).

Another clear category of losers is facilities that took significant advantage of the hospital look-back provisions under RUGs III to establish diagnoses, rehab and clinical care plans. RUGs IV and MDS 3.0 eliminate this provision entirely ( an exception exists for ventilator patients). I like to use the example of “former” treatments such as IVs for fluids or medications present in the hospital. Facilities that used the presence of IVs while a patient was in the hospital under the “look-back” provision could justify an extensive services qualifier to a high rehab group, capturing a high rehab plus extensive services RUG under RUGs III, even if the IV was gone when the patient was admitted to the SNF. Under RUGs IV, no IV present on admission becomes the assessment basis plus, IVs for nutrition/hydration and medications now qualify as Clinically Complex rather than Extensive Services. Extensive Services qualifiers under RUGs IV only include ventilator care, tracheostomy care, or isolation for an active, infectious disease. The patient must also have an ADL score of 2 or higher.

The clear winners under RUGs IV are facilities that care for clinically complex patients and patients that are more ADL dependent. For example, and in follow-up to the paragraph above, SNFs that provide ventilator care, tracheostomy care, care for infectious diseases, etc., plus provide rehab, can win “big”. For example, a ventilator patient receiving 325 minutes of therapy per week from 1 discipline 5 days per week (Speech and/or OT are the most common here) would be categorized as an RVX under RUGs IV with a corresponding urban federal rate (payment rates are by regions) of $786.66. An RVX under RUGs III pays $467.62. A similar relationship holds true across the categories for facilities that provide care to more ADL dependent patients. Higher ADL dependency scores increase payments rather rapidly. There is a note of caution here though as today, I routinely see ADL scoring that is speculative at best (typically upped) as the MDS 2.0 is less sensitive about ADL scores to generate a RUGs rate. Under MDS 3.0, the ADL assessments are far more sensitive and detailed, designed to truly qualify ADL deficits. I believe a fair number of facilities will find their ADL scores decreasing rather than increasing over time.

As I indicated previously, RUGs IV increases the nursing index weights at the expense of rehab. Essentially, facilities that typically bill below average rehab utilization (days) under RUGs III stand to come out ahead under RUGs IV, provided their clinical complexity is average or higher. For example, an SSB for wounds under RUGs III correlates under RUGs IV to HD1 or HD2, depending on the presence (lack of) depression. The clinical weight index jumps by .50 under HD1 or by 1.0 under HD2, creating a positive revenue impact of $90 to $140 per day respectively. Fundamentally, facilities that provide more clinical nursing care to a population with higher ADL deficits, cognitive impairments, and maintain an average rehab profile as expressed through utilization, will fare better under RUGs IV than RUGs III.

Assessing the Impact of RUGs III to RUGs IV

In order to assess the financial impact or revenue impact of payment under RUGs III vs. RUGs IV, a provider needs to essentially map their current/historic Medicare case mix as determined under MDS 2.0 (paid under RUGs III) to RUGs IV. To date, there are two ways to do this and neither are easy. The first is to complete an MDS 3.0 for each current resident under Medicare. I don’t advise doing this as it is cumbersome and in many cases, providers are still learning the nuances of 3.0 assessments. The second option is to use a cheat sheet and a somewhat simplified method. The method is as follows.

Pick a fairly consistent utilization period such as the last six months to a year. Across that period, total the number of patients billed under each applicable RUGs III category, including the days billed. Obviously, not every group will be used. For example, if during a set period such as six months, the facility had 42 patients in RHA with respective lengths of stay ranging from 22 days to 36 days, I’d list 42 RHA with a calculated average length of stay.
For each RUGs III group with billed patient days, pull the corresponding MDS’ for each patient. Analyze the MDS’ to develop a consistent profile of the patients that fit into the corresponding categories. The profile should be specific enough to cover typical ADL scores, significant clinical issues (wounds, IVs, etc.), therapy disciplines and minutes, etc.
Next, using a spreadsheet that I can provide (drop me a note at hislop3@msn.com including your e-mail address and I will send it out), map your RUGs III profiles as created in steps one and two to RUGs IV groups. Note: An RVX under RUGs III will not likely correspond to an RVX under RUGs IV as to qualify, a patient under a RUGs IV RVX must have a ventilator, require tracheostomy care or have an active infectious disease. Also, be very conscious of the concurrent therapy minute changes under RUGs IV when mapping your therapy minutes. Remember, under RUGs IV, concurrent therapy is divided equally among the two residents/patients (i.e., two residents in PT treated concurrently for an hour does not equal 60 minutes of therapy for each resident but 60 minutes total, 30 minutes allocated to each resident).
Once the facility has mapped each RUGs III profiled group to corresponding RUGs IV groups, you can analyze the revenue impact. Multiply the number of residents per RUGs III group times the average length of stay for the group times the applicable RUGs III rate. This is your RUGs III revenue average. Next, do the same calculation for the RUGs IV groups (if you need the RUGs IV rates, drop me a note at hislop3@msn.com and I can provide them to you). Finally, compare the two sets of revenue numbers.

IMPORTANT: The second method gives you a good generalization of the revenue impact but it is not exact. To be more precise, one would need to analyze each billed encounter under the RUGs III system and then, translate the same profile to RUGs IV. Additionally, the only true exact method is to reassess each patient under MDS 3.0. Because of the significant changes under RUGS IV to ADL scoring, look-back periods, and therapy minutes (concurrent vs. one on one vs. group) and the weighting of clinical issues (IVs no longer qualify as “extensive”, etc.), it is very difficult to map precisely, the financial impact of transitioning from RUGs III to RUGs IV.

Important Points to Consider/Remember

Based on my varied and numerous conversations with providers, I’ve created this brief list of issues and/or important points regarding the transition from RUGs III to RUGs IV.

RUGs IV and MDS 3.0 will change “how” SNFs do business or it should, unless the SNF wants to see Medicare revenue shrink. Extremely key to remember and plan for;
- No look-back period
- Concurrent therapy rules
- Highest Rehab groups (extensive services) require the patient to be on a ventilator or require tracheostomy care or have an infectious disease.
- Next highest rehab groups will be difficult to meet the minute and discipline requirements if your current standard for rehab relies heavily on concurrent therapy.
- Emphasis on ADL scoring is key in terms of attaining higher groups within categories as is the documentation of depression (if present).
- Assessments under MDS 3.0 are longer and meeting dates is critical to avoid default rates – more work, more staff time and time sensitive dates.
If an SNF is using a contract therapy provider or company, the time to review and gain understanding about the transition to RUGs IV is NOW. The SNF needs to make certain that the therapy company is capable of providing the necessary staff resources to principally deliver one to one therapy. The SNF also needs to understand the financial impact to its operations that occurs when the therapy company adds staff (if required). Further, and this point can’t be ignored: Medicare billing liability for all claims under Part A and B follows or stays with the owner of the provider number. In a relationship between an SNF and a therapy company, the SNF is the Part A and predominantly, the Part B provider – not the therapy company. Under the law, the requirement to assure accurate and timely billing falls to the SNF. Any OIG enforcement, RAC activity, etc., will focus all fines, penalties, recovery, etc. on the SNF, not the therapy company as the SNF is the owner of the Part A provider number. Implication: Don’t let your therapy contractor “drive the bus” on the transition to RUGs IV. This needs to be a partnership and one where each party knows the rules, knows the impacts and has clear duties spelled out in the contract with clear remedies. SNFs should not rely on standard therapy company indemnity clauses as the clauses I have seen typically limit the damage to the SNF for claims rejections, etc. to the “charges” the therapy company passed on to the SNF for providing services under the contract as applicable to the specific claim. In short, the SNF bears the loss of the revenue for the claim plus if applicable, any fines or penalties, even if the therapy company personnel and their actions were the primary reasons the Medicare claim was denied, rejected, and/or deemed fraudulent.
The weighting within RUGs IV and thus the dollars, skew to the nursing side of things, away from rehab. The weighting has shifted to clinical from therapy and as a result, gaining dollars and better reimbursement will come from a) changing your patient profile to one that has more clinically complex patients, and/or b) capturing the true clinical needs of your patients and their depression, ADL dependency, etc., on the MDS 3.0. I always urge caution about (b) as the daily documentation better support the picture portrayed under the MDS or the implication is that the MDS was created to take advantage of payment which, if not matched by a patient with those needs, is Medicare fraud.
- Providers that wish to alter their patient profile need to explore the full ramifications of doing so financially and operationally. More clinically complex and dependent patients may generate more Medicare revenue under RUGs IV but they also come with a cost. The cost is typically in higher medication use, supply use, and staff resources. Suffice to say, this population requires more nursing staff and perhaps, different nursing staff in terms of qualifications and training. Additionally, more clinically complex and dependent patients require more Social Service time and are more potentially problematic from a survey standpoint as there is more “stuff” going on with them. An SNF moving in this direction needs to evaluate fully, the risks, costs and benefits associated with such a strategy.
While CMS says that overall Medicare spending on SNF care remains the same under RUGs IV and RUGs III, don’t believe it. The distribution as forecasted is clearly toward a particular patient profile that is different than current or, a RUGs IV profile patient is different than the current RUGs III profile patient. MDS 3.0 is a lot of work and will require facilities to adapt how and when they do their assessments and what resources they allocate to the assessment process. In short, to make a smooth transition between RUGs III and RUGs IV requires planning – a lot of it. It is less about groups and assessments and more about “how” the SNF does business. Understanding the core concepts behind MDS 3.0 and RUGs IV is akin to understanding the rules of the game. No game can be played successfully and efficiently without first, fully understanding the rules.

September 3, 2010 Posted by Reg Hislop III | Policy and Politics - Federal, Skilled Nursing | Compliance, MDS, Medicare, Nursing Homes, Payment, PPS, RUGs III, RUGs IV, SNF, Strategy, Therapy, Transition | 15 Comments

August E-News

My company’s monthly E-News was published on-line today at http://apexhealthcareconsultants.info/2010/08/

Articles this month include;

Economic Outlook
The Housing Market and Senior Housing: More Stormy Seas Ahead
RUGs III to RUGs IV Transition
Reimbursement Update
Abuse Prevention: An Apex Clinical Feature

August 31, 2010 Posted by Reg Hislop III | Assisted Living, Policy and Politics - Federal, Senior Housing, Skilled Nursing | Leave a Comment

House Passes Jobs Bill Containing Enhanced FMAP

On a party line vote, the House of Representatives passed legislation euphemistically coined the “jobs bill”. The $26 billion dollar legislation includes a $10 billion appropriation for state school budgets and $16 billion to continued the enhanced FMAP (Medicaid match) provided under the ARRA (Stimulus bill), set to expire on December 31. The vote was 247 to 161. The appropriation for continuation of the enhanced FMAP extends the additional Stimulus funding through June 30, 2011.

Key supporters of passage of the bill were teacher’s union and other municipal unions who claimed that without the additional funding ($10 billion), job losses via layoffs were certain. Detractors of the bill claim that the $10 billion, once divided among 50 states, is hardly adequate to offer much financial relief. In fact, the original version of the bill provided for more than double the funding but deficit hawks in both houses offered sufficient resistance to carve the amount to $10 billion. Interesting as well is the fact that some $30 billion provided under the ARRA remains unspent for education support.

Supporter of continuation of the enhanced FMAP included SNF and long-term care trade associations as well as the National Governor’s Association. Their claim is that without continuation of additional Medicaid match funding, state Medicaid budgets, already structurally broke, would reel instantaneously, causing necessary cuts in benefits and provider reimbursements. Detractors point out that the economy is unlikely to recover fast enough and certainly, not sufficient by mid-year 2011 to avoid the need for either additional federal funding support or substantial budget cuts.

The President is expected to sign the bill quickly, using the ceremony to reinforce the Administration’s claim that the funding was necessary to preserve key governmental infrastructure jobs. Republican detractors will no doubt continue to rail against the bill’s passage claiming that is another de facto bail-out and the bill’s tax increases will hurt the already flagging economic recovery.

August 10, 2010 Posted by Reg Hislop III | Policy and Politics - Federal | ARRA, Budget, Congress, FMAP, House, Jobs Bill, Medicaid, Payment, Washington | Leave a Comment

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Reg's Blog

Senior and Post-Acute Healthcare News and Topics

Medicare SNF Cuts: Fact, Fiction, Probability

Accountable Care Organizations: A Post-Acute Perspective

MedPac Report to Congress: 2012 Recommendations

The Unraveling of the PPACA

RUGs IV Here to Stay!

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RUGs III to RUGs IV: The Core of “Need to Know”

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House Passes Jobs Bill Containing Enhanced FMAP

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