Lately (last three to four weeks), I’ve been getting a steadily increasing series of questions regarding CCRC marketing, value (economic) propositions and to a lesser extent, repositioning.  The sources of course anonymous, range from established communities to relatively new communities, seeking sales and occupancy improvements.  In some form or fashion, I’ve likely addressed most of these issues in pieces via various posts and articles spanning the last two years but alas, I have been remiss in circling back with a condensed and consolidated version.  Hopefully, this post will help.

Post recession and into a grinding period of almost unrecognizable economic improvement sprinkled with volatility, CCRCs need to come to grips with four key themes when it comes to marketing.

1. Reality has shifted permanently for the industry.  This is not necessarily bad but it does mean that every aspect of the sales and marketing cycle once engrained, understood, and successful in terms of selling units has changed.  Consider the following;
   • Within the last four years, most seniors saw their incomes via investment returns, social security, pensions, etc., flatten and/or trend down.  Some saw immediate and permanent reductions (permanent for their remaining lifetime).
   • While investment portfolios principally consisting of equity securities have rebounded, the recoupment of loss only occurred for those that remained fundamentally steadfast and did not turn what were ”unrealized” losses into realized losses via reactionary selling during the market fall-off and bottom.
   • Depending on the individual market, real estate prices fell precipitously or at least modestly and the liquidity of the real estate via a thriving residential market stagnated and declined.  Some markets have recovered elements of liquidity and re-sale value (price) but not to the levels prior to the downturn.
   • Seniors housing demand has always been elastic but as a result of the three points preceding, it is even more elastic today.  Why?  Simply, economic fortunes of the consumer shifted downward and thus their real and perceived purchasing capability moved accordingly down while the prices for seniors housing remained stable to modestly higher.  We’ve seen a similar effect in new construction vs. existing housing.  New construction per square foot costs have stayed relatively flat or slightly higher over the period while existing construction on per square foot basis fell.  When the correlation between the two is tighter or even inverted slightly, the demand shifts accordingly.  For seniors housing, this added price elasticity, created by a wider gap between the declined consumer’s economic purchasing capability (again, real or perceived) and flat to slightly higher seniors housing prices, creates a different value proposition and purchasing dynamic.  For most CCRCs and other seniors housing providers, the best strategy to combat some of this impact in the near term is to hold prices or drop prices; a scenario for many that may be difficult.
2. The customer demography has shifted.  While this shift has been subtly occurring over the past decade, the recession period sped the movement.  Retirement is now more deferred and the economic need or desire to remain in the community for a longer period of time more developed.  The customer today is de facto older and more driven by need, predominantly health related.
3. In light of number 2 above, even with the constant growth of age bands suitable for seniors housing and CCRCs, a percentage of the market evaporated.  This percentage is folk whose economic fortunes changed so profoundly negative or were marginally positive enough to afford a seniors housing product but now no longer so as a result of wealth loss.  This segment or percentage was at the normative market age, economically qualified at the time, but four or so years later, outside the age and health profile and/or economically incapable of affording the product.  The bad news is, the replacement numbers generated from a cohort behind them are insufficient to make-up for their loss.  The market has marginally shrunk, although unit numbers have not and in some markets, have increased during this period.
4. Given points 1-3 above, the sales cycle is now longer requiring new approaches, more touches, and revised pricing strategies and product features that realign the value proposition.

Circling back to where this post started, the compendium of current questions I am attempting to defer and answer lie in number 4 above.  Specifically; “OK, I get 1-3 but how do I then develop the strategies, etc. dictated by this new sales cycle”.  My summarized answer is below.

• First, redefine your customer.  I like an analytics approach.  Who are they?  What do they need? What is their economic profile?  What are they shopping for (and it’s not the real estate)?  What is their background at all (or as many) levels that you can ascertain (education, occupation, interests, locations, current living arrangements, health profile)?  The more you know, the better.
• What is your community’s economic value proposition?  I’ve written on this before and it needs to be clear.  Price it and benchmark it across the broadest market segments possible (compared to living in their current home, rental, condo, etc.).  How does your product compare to competitors at all levels (features, services, care levels, etc.) on a price basis, quality basis, access basis, etc.?  Again, the more detailed this information is, the better.
• Generating leads once the above is complete becomes easer.  The strategies that work the poorest on a cost per lead basis are newspaper and print media advertising, other media advertising, facility generated brochures, billboards,  and events.  Events can be helpful in getting people into the community to remove a barrier but in and of themselves, they do very little to turn attendance into prospects without other steps taking place.  Strategies and tactics that work best in terms of numbers and on a cost basis are referrals (current residents, families, community members, from other providers, etc.), e-mail contacts and direct mail, website and social media marketing, and co-branding with other organizations where your target market is plentiful and frequent.  In this latter strategy, I recommend being present and visible via human presence as well as building joint lists and joint value-added connections (education, support, referral development, resource sharing, sponsorships, etc.).  A word of caution here: Make absolutely certain that in co-branding and co-marketing strategies that the other organization is as credible and solid as your organization - the relationship must be value-added not value-dilutive.
• Incorporate new math into your thinking.  The new math is all about how many touches and presentations are required to make a sale.  For most CCRCs and market rate or above market rate projects, 20 or so touches to qualify and close a prospect is the new norm.  In short, if you are working on a list of 100, expect five to ten sales (if the list is qualified) from that 100.
• Marketing needs to focus on building “volume” thus, methods and analytics need to be at the forefront of strategy.  To keep costs manageable and to build fluidity, I recommend strategies that utilize in revolving fashion, the following four elements.  First, e-mail blasts and e-mail news letters that go out to target segments on specific interest levels.  Second, simple events that are educational, again focused on target market interests.  Third, internet and social media campaigns.  For internet, I like to make certain that the web pages are clean, focused and have ample opportunities for people to request more information.  Fourth, direct mail campaigns.
• All campaigns and elements need to focus on a clear, direct distinction between your product and other options.  In other words, the goal is to find as many ways as possible to reinforce what the value proposition is and how the same is directly correlated to the interests of your target markets.  For CCRCs, the simplest concept is “continuum of care”.  The vast majority of CCRC consumers are motivated by health and supportive care access.

The “new” CCRC marketing reality is all about analytics and alignment; narrowing the gap between what your customer wants and how your community is best suited to address the key issues.  Touches have to go up to meet sales objectives and contacts need to be weeded through quickly.  Building a qualified and fluid prospect list today is all about using multiple methods with fluidity.  Finally, I can’t emphasize enough how critical and how granular the marketing analysis needs to be to push forward a successful strategy.  Without a full analysis of market targets, customers, prices, product, etc., gaps remain that allow prospects to filter through, resulting in less than effective marketing activity.

About a month ago in a post I wrote regarding post-acute trends (http://wp.me/ptUlY-aO ), I indicated that my sources inside D.C. and CMS were all but certain that a final rule implementing the required separation as of January 2013 was forthcoming.  In calls today, the prevailing news is that via the comment period and protracted industry pressure, CMS realized it needed to move away from this position.  Perhaps more telling to “what” transpired is the directed two-tone sound flooding CMS.  The first loud and repetitive sound drilled throughout CMS their inherently flawed and unsupported conclusion that the pharmacy relationships correlated directly to increases in antipsychotics and psychotropic drug regimes found in SNFs.  As I mentioned in my earlier post, this conclusion was supported by no clinical or valid data. In short, from all clinical segments tied to the industry, CMS was bombarded with data refuting this assumption and demands to demonstrate this preposterous correlation.   The second deafening sound regarded the financial implications for facilities, already stinging from significant Medicare cuts and insufficient Medicaid reimbursement.  In my case, I provided directly, supporting financial and operating data for certain industry client groups illustrating the improbability of sourcing independent consultants, the costs that would be incurred to employ or engage an independent consultant, and the tangential costs the facility would bear in terms of software investment, time, and other resource utilization to implement “effectively” such a system.

The frank reality is that CMS wholly missed the mark initially.  There is a clear shortage of pharmacists nationally and thus, a real acute shortage in certain regions and rural locations.  There is a pronounced shortage of clinical expertise and geriatric pharmacologists, the back-bone of good consulting.  Finally, only organizations sufficient in size and mass have made the necessary software and system investments to make consulting effective and efficient; most other organizations remaining lax in the tools necessary to undertake SNF clients on a consulting pharmacology engagement.

Finally a win for the an industry segment that has really taken hits from a regulatory and reimbursement prospective.  SNFs needed this reprieve, if for no other reason than to continue to digest all of the other oft ill-conceived and illogical requirements already on their plates.

Economic Value Analysis is a fairly simple process that centers on determining the ability or capability of a product or service to satisfy the core demands of a given market; the ability to quantify utility.  Utility in this context, simply stated, is satisfaction at a given price.  For seniors housing, the struggle always is “how” to demonstrate value to potential consumers in a way that is logical and meaningful.  This is acutely problematic in a market that is competitive as the “noise” emanating from all the competitors regarding price and services is constant and at times, deafening.  At its core, Economic Value Analysis creates a more tangible constant.

Given that seniors housing has a very elastic demand curve (a great many substitute products provide equal or proximally equal core utility), the devil is creating a comparison basis and this basis is not “stated price or features”.  A place to start is completing a simple analysis that equates a seniors housing unit per square foot cost (cost = fixed costs, variable costs, and margin) to the comparable alternatives in the market.  In this case, comparable alternatives equal rental housing, other competitors, community dwellings (housing units, condominiums, etc).  Ignore your current pricing structure as unless the same is equalized on a square foot basis, this analysis won’t provide a true picture.

Taking the example to the next level, once the cost per square foot is known, determine the relevent market comparables.  This does take some homework but it is fairly easy to complete.  Via simple survey, one can generally gather enough information from realtors, friends, etc. to determine a community housing cost per square foot (utilities, taxes, rent costs, depreciation/maintenance, etc.).  Gaining information from competitors is even easier as typically, they publish the information or a simple “blind shopping” trip gathers all the necessary information.

Once the information is gathered, populate a simple spreadsheet with the data.  If the core cost per square foot for the seniors housing option is higher, and it typically is, the analysis must delve deeper.  Usually, elements that drive costs for seniors housing come in the form of rate or price inclusions such as meals, cable television, maid/cleaning services, etc.  Two approaches to deal with this issue are possible.  First, back these costs out of the seniors housing number and re-analyze the comparables.  Second, and my recommended method, gather data on these services and develop a square foot comparable.  Between competitors, the key is to keep the data as apples to apples as possible so one must be clear that the costs include exactly (or as close as possible) the same features/amenities, etc.

Once all the information is known and “spread” and sorted, the picture should become clear.  I like to look closest and hardest at the comparison between living at a seniors housing complex versus living in a market rate situation whether that is home, condominium or rental.  The age-old belief among seniors is that a seniors housing community is too expensive.  The analysis should detail where the true costs lie.  Expect some price sensitivity issues where the seniors housing is a tad more expensive but the difference should be clearly and easily explained (24 hour services, access to care, transportation, etc.).  The more than can be quantified in the form of dollars, the tighter the analysis becomes and the easier it is to explain where the salient benefits lies.  If the gap between the seniors housing cost and the alternatives is too high, the issue may lie in the structural elements of the equation such as inordinately high fixed costs or variable costs.  Becoming competitive may require changing, if possible, the financial drivers of the seniors housing project equation.

Concluding, the square foot model works exceptionally well in this analysis as it provides flexibility to model and to change any number of variables.  It also is “non-unit” specific so its data and results aren’t skewed by less-than relevant unit pricing schemes.  The difficulty simply lies in taking the time to build the model and to accurately gather solid data from the “universe” of housing alternatives.  Assuming costs mirror most of the market, the value proposition thus becomes a powerful tool that can and should be used in market positioning.

• Revenue Efficiency: This is very simple: How much of the proposed project square footage produces revenue?  The more square feet tied to revenue generating functions, the more revenue efficient the project is.  For seniors housing, the factor or test is very important.  Too often, I see proposed projects that allocate way too much space to commons and other areas that aren’t related to revenue production.  While groups will argue that these spaces are necessary to attract prospective renters/residents, the reality is that smaller, more efficient is better from an operating standpoint and frankly, even from a marketing standpoint.  Too much space can give the project a “vacant” feel while driving up costs related to heating/air conditioning, maintenance, furnishings, etc.  Ratios of revenue producing square feet to  common or non-revenue producing square feet of 70/30 or less, tend to work best from a feasibility standpoint.  I’ll tie this point tighter in subsequent segments.
• Prospective Rate Test by Square Foot: While rate charged is a function for many providers of market or other perceived and financially tied projections, a first basic test should involve a simple equalization model based on project square feet.  In fact, this test is an easily built model that can be used for many rate setting exercises and revenue pro formas.  First, total the revenue producing square feet in the project.  Next, determine the project’s projected or known, fixed costs, variable costs and desired margin.  Finally, decide at what level, stabilized occupancy will occur (e.g, 85%, 90%, etc.).  Hint: Amounts or levels greater than 95% are not realistic.  Once the aforementioned data is determined, divide the total of fixed, variable and margin (annualized) by the total revenue producing square feet, divided by 12 for a monthly factor or 365 for a daily factor.  Finally, multiply this result by the stabilized occupancy percentage.  The result is the gross revenue per square foot required by the project to cover the fixed and variable costs plus generate the desired margin.  To equate this number to prospective rates, multiply it by the unit square footage for each unit type in the project.  Next, analyze the results compared to market.  Are the rates calculated attainable?  If the rates are ultimately not, can the revenue be picked-up elsewhere via a shift among unit types?  Are the costs too high?  Back to the first point, is too much of the project square footage not tied to revenue production?
• Occupancy Tests: Knowing what the projected gross revenue is on a square foot basis provides a basis for conducting some simple occupancy tests via adjusting fill-rates, overall occupancy rates, payer mix, etc.  Using the same formula above but varying the occupancy, it become easy to see the relationships between square foot expenses, particularly those that are fixed and the revenue levels required to cover these expenses.  I like to analyze the ratios between each or, how much occupancy do I need to cover fixed expenses (percentage) and where can I massage variable expenses based on occupancy levels or payer mix.  Typically, once a simple spreadsheet with square foot costs and revenues is built, it is fairly easy to do assumptive modeling and analyses.
• Payback Testing: An important analysis or test too often ignored or, assumed to be tied to a debt service amortization schedule, is payback testing.  Payback should be factored to occur on or before the point in the project’s useful life, when major improvements need to occur.  The point here is that the project ideally is paid-for before major improvements occur, commonly known as the period of re-building.  At this point, one shouldn’t look at a scenario of re-building when the original debt or expenditure (if equity is the source) isn’t already recovered or substantially defeased.  If this doesn’t occur, the capital improvement process is akin to building the project twice (or major portions thereof).  In simple theory, new buildings or new construction provides a window of time where capital infusion for improvements is minimal if almost non-existent.  This period is where incremental cash (assuming proper pricing at sustainable occupancy levels) can accumulate, allocated for payback (either via faster current debt repayment or investment for future repayment when the arbitrage is positive).  My preferred methodology for this analysis is to develop a cash flow analysis where revenue is netted against cash expenses, including debt service.  I set my targeted payoff period as that time in the future where projected improvements via major system, structural, etc. upgrades will occur – typically by years 12 to 14.  I also will net my annual cash flow by anticipated or projected capital improvement expenditures that use ”cash”.  For inflation assumptions, or investment assumptions, I try to use actual or historic data and I err on the side of conservatism.  Two methods can be used in this approach.  One that negates principal repayment in “real-time” and one that incorporates incremental principal repayment.  If debt is involved and on an amortization schedule with principal repayment incorporated, its easiest to assume a declining balance for the payback analysis.  If the source of funds is equity or a combination of  debt and equity, I assume equity repayment at a current cost of capital rate and while I may not create an amortization schedule with imputed principal payments (equity repayment), I will assume a “balloon” effect by imputing a cost of capital return assumption on the equity.

Ideally, this type of analysis is done sufficiently ahead of project finalization.  If such is the case, the project can be adjusted to conform to a proper payback period, be optimally efficient, and have a rate/revenue structure that fits within the target market.

Pharmacy: In October of last year, CMS issued a proposed rule with a provision inserted which, if published within a final rule, would prohibit consulting pharmacists in SNFs to be employed by or contracted with, the dispensing pharmacy.  The theory is that when consultations are performed by pharmacists employed by or affiliated with, the dispensing pharmacy, there exists a greater potential for SNF residents to have as part of their medication regime, higher levels of anti-psychotic drugs, psychoactive drugs, and an increased level of unnecessary or unwarranted drugs.  Of concern to most of us working in the post-acute/healthcare arena is that CMS can point to no specific data or research to support this theory, save a well-known fact (historically) that seniors in SNFs use far more anti-psychotic and psychoactive medications that seniors in non-instiutional settings.  Drawing a bright-line conclusion that consulting pharmacists related to dispensing pharmacies are the cause is boneheaded to say the least. 

Despite this flawed view on the part of CMS and the comments generated during the comment period, my sources inside the D.C. beltway are saying that CMS will publish a final rule soon including a provision requiring SNFs to use independent consultant pharmacists, effective January 1, 2013.  Assuming this does occur as I am hearing, SNFs today should begin to work to develop a plan to source possible options ASAP.  The inherent difficulty of course is;

• Insufficient supplies of pharmacists, particularly those that have current clinical consulting experience.
• In light of the point above, pharmacists with access to clinical consultation software applications.
• Knowledge - Geriatrics and chronic disease is a specialized field.
• Time and efficiency – getting to know the residents and their respective drug regimens will take a non-affiliated consultant longer.
• Cost – finding a source will not come cheap.

Some options do exist for SNFs in the right market areas.  My best advice is to approach hospital systems, work with universities with pharmacy schools, band together with other SNFs, and start now to build a consultant’s package with your current consulting pharmacist, assuming he/she is working with your dispensing pharmacy.  It is likely the dispensing pharmacy will work with its SNF clients to a great degree, trying as best possible not to lose the current dispensing business as a result of being a barrier in a transition period.

Hospice and Fraud: Most people who are close to the hospice industry either foresaw or should have seen, the current investigative and crack-down activity from OIG and CMS. The industry in terms of providers and benefit utilization, grew substantially over the past decade, despite overall health care utilization remaining on a relatively slow-growth to no-growth plane. For people like me who watch the industry closely, it was illogical to assume that a growth of terminally ill individuals suddenly sprouted and maintained the growth rate recently evident.  The same logic concerns were expressed by Medpac and the OIG with the OIG specifically warning of forthcoming investigations where the bulk of a hospice’s patient encounters arose from nursing home contracts.  Just last July, the HHS OIG indicated that it found that hundreds of hospice agencies relied on nursing homes for over two-thirds of their case load. Other reports from Medpac and the OIG found that literally half if not more of these proto-typical nursing home patients under the hospice benefit, did not meet one or more of the qualifying criteria for coverage/certification.

While the large agencies, predominantly investor-owned will be on the radar, even smaller and regional agencies are coming under scrutiny. CMS reports, and I have encountered this first-hand, that claim denials are up, particularly at re-cert periods.  Diagnoses are being scrutinized carefully, with CMS looking at re-certs and probing for some evidence of deterioration or movement toward death.  CMS knows that certain diagnoses and patient locations correlate to longer stays and as such, the audit focus is squarely on this relationship.

For hospices, the direction is clear – be wary and cautious of certain patient types and the “nursing home/assisted living” patient flow.  Nursing homes and assisted living facilities are not necessarily gold-mines of potential referrals,  In fact, the true number of organically terminal patients that would/will fit the hospice benefit criteria is not much greater from an overall ratio perspective, than the number found in the general population.  While the business relationships between a hospice and a SNF or assisted living facility appear attractive, it is the attractiveness that also makes the same perilous today unless smartly coordinated and managed.

For the past couple of years or so, the hospice growth trend in terms of referrals has been slow to flat.  Nothing regarding the recent fraud cases in the industry suggests this trend to arrest.  If anything, I expect to see the trend marginally down for a period with the industry actually contracting in terms of the number of providers.  Some will simply call it quits while others will sell or merge.  Either way, expect fewer total providers and a stable to decreasing referral pattern shift.

Qui Tam, Me Too: The latest round of major fraud actions and False Claims Act identified violations arose out of Qui Tam actions or more commonly, Whistleblower actions.  While the Federal government is clearly targeting certain post-acute segments (see OIG 2012 workplan), equally as profound an impact on the industry is the proliferation of former employees and/or contractors willing to disclose less than scrupulous provider behavior.  While this element of the law always existed (enforcement and recovery via a private citizen for a portion of the recovery settlement), it has clearly grown to a new level in recent years. The reasons?  First, down economies bring forth certain behaviors on the part of businesses pressured to generate earnings and revenue growth.  If no organic growth exists within the business sector or market(s) a business occupies, it is incumbent upon the business to find new ways to mine potential market niches.  This is very apparent within the hospice sector and in the Medicare component of the SNF industry.  The pressure to build revenues in non-growth periods inherently leads to some corner-cutting or machinations that run afoul of the False Claims Act.  Shrinking or saving to a profit while a short-run strategy, is nearly impossible to maintain over a longer term horizon without shedding fixed costs as well; very difficult.

The problem inherent with manipulation of Medicare coding, billing, referral requirements, etc., is that what seems good or plausible at a 20,000 foot level must also seem good and plausible at the ten foot level; a level where multiple people must buy-in to the same structural arguments, beliefs and incentives.  As the folks existing at the ten foot level rarely see the same level of incentive nor have perhaps, the same level of “skin” in the game, any level of apprehension arising on their part or disgruntlement can be quickly structured into a Qui Tam action. Mix equal parts news coverage with employees disgruntled by certain practices with a growing element of the bar (lawyers) seeking Qui Tam actions with a government willing to pursue these actions and you have a fairly fertile tract of ground for more Qui Tam events.

The moral of this story is that organizations need to be very vigilant concerning their compliance activity, removing any incentives tied to new revenue growth without some counter-balance of audit and scrutiny.  Too many times I have heard providers tout abnormally good results in segments or sectors that are flat to under-performing.  This is a red flag simply from the standpoint of “why you and not everyone else” logic.  If for example, an SNF has an inordinately strong, high paying rehab case-mix and therapy productivity, my counsel is always around “red flag”.  Any facility’s profile should match close to the national case-mix distribution and when it doesn’t, either abnormally low or high, its time to delve deeper.  The same is true with hospice growth, nursing home days, length of stay and percentage of continuous care designations.  Remember the age-old economic axiom – “what gets rewarded or paid for, gets done”.  Incentives perversely aligned within the boundaries of False Claims Act risk areas are ripe for peril and thus, someone within the organization or tangentially connected to this process, to cry foul with today, the expectation of a decent future pay-day.

Revenue and Earnings Cautions: In light of some of my comments regarding Qui Tam above, certain post-acute sectors are seeing revenue reductions and thus, earnings shortfalls resulting from Medicare payment reductions and fraud/probe activity.  Hospice is a segment that I predict will continue to under-perform as growth is truly non-existent and where growth was attainable via SNF relationships, clearly constrained by federal oversight. Additionally, the SNF industry will suffer as well.  Kindred’s recent earnings announcement showed this quite clearly.  Medicare cuts impacting therapy RUGs primarily will impact SNF organizations that relied on “mining” certain RUG categories for revenue and margin.  Without a more streamlined and balanced revenue model, the Medicare reduction comes faster than the trailing operational improvements possible via rebalancing the business enterprise. Kindred announced as much as it intends to shrink its facility holdings via non-lease renewals and concentrate on building a more efficient revenue/expense equation. Remember, fixed costs are the most difficult to shed and variable costs, tough to align in tight labor markets and markets where patient populations flux daily.  In short, only so much can be gained via trimming variable expenses and typically, the amounts are less than adequate to offset revenue reductions and protect margin.

Quality or Quit: The final issue and one that has been lurking in the shadows and unfortunately, ignored by too many providers, is the issue building around “quality”.  The frank reality is that from all my sources in Washington and around the various policy arenas is that quality is what matters.  There is a prevailing and growing belief that payment must be tied to quality and that government must do everything within its power, regulatory and otherwise, to push providers to deliver better outcomes, more efficiently.  This is the genesis of the ACO movement.  I have heard directly from important policy and political figures, directed at provider organizations and industry segments, produce “Quality or Quit” the business.  Providers have longed believed that quality was the furthest thing linked directly to payment, even though lip service was given to the subject.  For post-acute providers and industry segments, the recent release of proposed outcome measures by the National Quality Forum (anyone wishing a copy, e-mail me and I will forward) is a good place to start grasping what is coming, and in a big hurry.  Providers across the post-acute spectrum that are not presently, directly and seriously engaged in measuring key care outcomes, need to get up to speed quickly.  Reimbursement will be tied to quality measures and more important, providers that are not jointly participating up-stream and down-stream in quality improvement across industry segments, will not see the level or quality of referrals necessary to stay in business.

• Medicare payments to SNFs represent 23% of all revenues.  Medicare (payer) as a share of SNF patient days averages 12%.
• Provider supply and occupancy rates remain essentially flat year-over-year (2009-2010).
• Quality as determined through survey and other indicators remains unchanged.
• Average Medicare margin is 18.5%.  The average margin for for-profit SNFs is 20.7% and for non-profits, 9.5%.

The crux of the Medpac argument is that efficient providers have lower costs (about 10%) and higher quality as evidenced by higher rates of community discharges (38% higher) and lower rates of rehospitalizations (17% lower).  Accordingly, Medpac believes that the current system, inclusive of recent adjustments to rates (October) is set to produce the same level of behavior and outcomes, plus account for a 14.6% average margin in 2012.  The argument put forth by Medpac is that the Medicare SNF system must be re-based, principally due to the fact that margins have run consistently above 10% since 2000 and the correlation between margins and patient case-mix is non-existent.  In summary, the Medpac recommendation, which will head to Congress in the upcoming months, is to revise the PPS system now and begin rebasing rates in 2014, in phases.  In addition, Medpac is calling for a rehospitalization impact (negative) to rates for poor performing SNFs.

Ordinarily, Medpac recommendations such as this have more of a “frame the argument” impact than a real implementation objective.  Congress has been reluctant to take steps this drastic to any Medicare provider group for fear of industry fall-out and political damage.  Yet, as we have seen with the home health industry, greater movement is possible where rate cuts are concerned, particularly if the general tone is that the industry is too profitable and said profit is coming from gaming the system.  Double digit margins seem to get even Congressional types’ attention.

Looking at the industry, how the rate reductions in 2011 transpired, the initial report/recommendations from Medpac, and the current public policy environment in Washington, my near term rate outlook for SNFs is as follows.

• All the evidence suggests PPS refinement is forthcoming.  The system simply isn’t working adequately in terms of tying payment rates to care costs and rewarding quality.  The “behavior” effect that CMS is looking for, namely a movement away from “rate ramping” focused on rehab case-mixes to rate equalization focused on a balanced book of Medicare patients (balanced case-mix) isn’t happening and apparently, isn’t properly incented in the current system. 
• Rebasing isn’t far-fetched but it is aways off.  CMS is prone to be exceptionally slow at devising payment systems and of course, equally inept at getting the infrastructure to work properly.  If as I believe, the first step is PPS refinement, given the likely horizon of implementation, rebasing is farther away; certainly farther than 2014.
• There is no question that payments will become tied to certain quality indicators, especially rehospitalizations.  This trend is foretold in the PPACA (Reform) and regardless of the law’s future (life or death or limbo), the payment tied to quality trend is here to stay.
• Politically, the will to champion what will be viewed as over-payments is far less than the will to find ways to rein in excess (or perceived excess).  All this means, regardless of the upcoming political cycle and elections, is that lobbying for a system that continues to produce average margins north of 14% will fall on principally deaf ears on the Hill. 
• Rates are trending down and I suspect another round of flat to modest decreases in rates forthcoming in October.  The push will be system revision as opposed to just rate reductions, feeling that the best approach is to revamp the existing PPS and in so doing, create lower spending overall.
• Time tested arguments against cuts that won’t work or have run their course are as follows;
  • Medicare margins are necessary to offset Medicaid losses.  This one is good on its face but in reality, its tough to make the case for margins that have run in the 20% range and earnings that have been solid among the for-profit companies.  The publicly traded guys need to show pain (in the form of earnings) before Congress will relent on the lack of merit for this argument (publicly traded SNFs tend to have higher MA census and higher Medicare census).
  • Access will become an issue and facilities will close.  Per Medpac and most industry observers, the supply today is adequate and slightly surplus so some continued shrinkage isn’t a big concern.
  • Job losses will certainly occur.  The latest cuts from October don’t support this argument by any magnitude.  Additionally, the overall health care industry is growing so worker displacement isn’t really a grave concern – movement is easy between providers in most markets.
  • Capital will be even more difficult to access with future negative rate outlooks.  Again, this is a decent argument but in reality, capital access is provider specific and CMS and policy makers realize that well run, profitable providers will continue to have access to capital, even if the industry outlook is negative.  A better argument is that negative industry outlooks make capital marginally more expensive and the number of outlets fewer.  This is true only in the short-run however.

So in conclusion, here’s the take-away: Medicare rates are headed down in the near term and in the intermediate term.  It is a virtual certainty that the present PPS system will be revised over the next three to five years.  The future of the PPACA will impact this process as elements of reform shift the landscape for all providers.  The debt discussions in Washington will have literally no direct impact on the future of Medicare SNF payments; the industry share of the overall spending pie is negligible enough to not be overly impacted by automatic cuts in federal spending.  The future is one where providers must learn to balance their overall Medicare book/case-mix and focus on quality.  Quality incentives/penalties are a certainty and there is no longer any room left to ignore outcomes such as discharges and rehospitalizations.  Likewise, I believe bundled payments are forthcoming and the further development of ACOs will continue to shift SNFs to align their care and product/service offerings toward outcome oriented, bundled payments.  Medicare as a payer source will remain profitable for many SNFs although not at the same margin levels seen over the past decade.  Profitability ranges will trend into the high single digits or perhaps slightly more but only for providers with a well-balanced case-mix.  As always however, the key to making money in this declining reimbursement environment stems from solid management, a well-balanced payer mix, and an operating infrastructure that is aligned with the incentives remaining in the industry.

In the previous post, I indicated that Medicare in and of itself is an instigator of some of the recent fraud activity.  The very nature of the program, how it pays, what it pays for and how its claim adjudication processes and benefit structures are configured establishes an environment that is a veritable Petri dish for providers looking to “game the system”.  By design, Medicare itself is uniquely flawed as it creates an incentive environment for ramping-up procedures, utilization and acuity thus leaving wide interpretive room retrospectively about the necessity of the care provided to any one or any group of patients.  Similarly, as the predominant payment methodology under Medicare is prospective, not based on a series of medical necessity tests, any third-party utilization review administered by qualified individuals will invariably find payments made for procedures, care, diagnostics, medications, et.al., that proved, knowing the final outcome of the care provided to a patient or group of patients, to be unnecessary or perhaps, greater in amount than what was truly required.  The assessment tools and tools of predetermination of need or necessity that drive prospective payments under Medicare, while lengthy, bureaucratic and ill-defined, rely extensively on human judgement and input that is subjective in many regards.  The playing field thus is truly wide-open and when combined with the implied incentive that more achieves higher payment, a clear or even abstract environment is present for fraud.

Behind the process of payment and the benefit administration elements of Medicare lies a whole series of laws and agency administrative codes that seek to define what is fraudulent behavior where Medicare is concerned.  Truly, this body of work is the purview of lawyers. In my years of travel throughout the healthcare industry, rare do I encounter folks at the operations levels, administrative levels, clinical levels or financial levels of healthcare organizations that completely grasp the depth and nuances of these laws.  In fact, because the topic and information is arcane and uniquely legal, I often encounter multiple consultants and even lawyers, that don’t understand it.  Frankly, I have spent time with consultants from large, well established practices whose content knowledge in this subject area is poor to non-existent and thus, outright wrong.

Taking the foregoing and placing it into an evolving conclusion, the puzzle starts to become clearer as to why “fraud” is spreading as rapidly as it is.  First, Medicare itself begets a certain level of activity that is specious.  Second, the laws that define fraud are convoluted and constantly evolving.  Third, the people at the organization level rarely understand the laws and to be honest, their jobs are not charged with “knowing” the depths of what Medicare and its associated agencies, consider as fraud.  Finally, all too many third parties that organizations rely on routinely for expertise are no more versed in compliance and the fraud laws than the organizations themselves.

In its most simplified form (lawyers please hold the laughs as my role is to employ wherever possible the KISS principle), fraud under Medicare can be boiled down as follows.

• Anti-Kickback: Forbids any individual or organization that is involved in the provision of care reimbursed or covered under Medicare or Medicaid  from receiving a financial incentive or inducement associated with a referral, the provision of service, utilization or marketing of a service.  The Anti-Kickback provision has been broadly employed to cover contractors, lease arrangements, referral arrangements, purchasing arrangements, etc.  A growing and today, somewhat common use of the Anti-Kickback laws are the relationships between SNFs and Hospices, vendor relationships with SNFs, pharmaceutical and equipment suppliers, provider organizations, and lease arrangements between Medicare providers.  Most interesting to note is the after-practice or after-violation OIG activity where Anti-Kickback language arises following a Whistleblower action of some form.  In short, I am seeing more  activity here not as a de novo action started by CMS but following after, a Qui Tam suit.  Because of the breadth of activity that falls under Anti-Kickback, it isn’t surprising that this area is the most misunderstood by providers.  For example, I routinely see situations where SNFs  enter into or seek, agreements with diagnostic providers (radiology, laboratory, etc.) for fee levels below Medicare fee-screens or allowable levels.  Equally not surprising, I’ve watched this activity escalate concurrent with reimbursement cuts under Part A.
• False Claims Act: Defines as a violation, any activity where a person or organization, intentionally and/or knowingly, causes payment to be made or seeks to cause payment to me made under Medicare or Medicaid for care that is improperly provided, provided illegally, unneccessary, etc.  Common applications or violations include upcoding, services not rendered, bundling or unbundling, services rendered illegally or unprofessional (not within a prescribed professional practice standard), phantom patients, kickbacks or inducements (see Anti-Kickback), and improper certifications or false certifications.  In most recent periods, like application under Anti-Kickback laws, the False Claims Act violations of significant magnitude seem to arise from Qui Tam actions.  Again, this areas of fraud is broadening rapidly as the methodology used by providers to create additional patient volume can and has run afoul of the False Claims Act (reference AseraCare’s most recent Qui Tam suit).  This area is a literal mine field for many post-acute providers and rapidly becoming an extremely hot interest area within the Medicare Hospice arena and the SNF arena.  What I see that is most disturbing for providers is their near complete failure to understand that a contract arrangement for services provided under Part A imputes False Claim Act liability to both parties.  Case in point: SNFs and therapy contract agreements.  Even though the therapy company may be completely at fault for upcoding therapy RUGs and thereby creating a scenario for violation under the False Claims Act, the SNF cannot escape the liability and culpability for the same violation under the Act as it is the Part A provider and the entity that generated the fraudulent claim to Medicare.  I am seeing the same application of False Claim Act provisions in the relationships between SNFs and Hospices where both parties were overtly engaged in certifying a resident as terminal when no such terminal condition truly existed.  In these situations, there is often dual application as the reimbursement crosses Medicare and Medicaid.
• Stark Laws (collective): Created and then adapted via a series of additional laws, Stark fundamentally covers physician self-referral for Medicare and Medicaid patients.  At the core is a theme of separating physician interests where, given a physician’s ability to direct patient flow, ownership or financial benefit arising out of a referral is a prohibited activity.  Stark governs ownership, investment and beneficial compensation arrangements between physicians and other Medicare and Medicaid providers.  As is true with all Medicare/Medicaid fraud related laws, Stark is complicated.  The law is loaded with nuances that arose across Stark’s three phases (Stark I, II and III) that cover an inordinately wide range of activities that are part and parcel to physician practices and their relationships under Medicare and Medicaid.  Stark also has a series of “safe harbors”; practices that on their face may be violations but when conducted in certain ways and manners, the practice is not a violation.  The establishment of these safe harbors principally arose to deal with issues where certain practices crossed between Stark and the Anti-Kickback laws.  Examples of existing safe harbors are physician investments in joint-ventures in underserved areas, practitioner recruitment in underserved areas, physician investments in their own group practices (provided the practice group meets Stark definitions), and specialty referral relationships where the referral from a primary care physician to a specialist includes a fundamental understanding that the specialists will refer the patient back to the original primary care physician for continued care (money or other inducements cannot be a part of this referral process).  Within the post-acute industry, the most common Stark violations I see are the relationships between contracted physicians serving as Medical Directors in Hospices, Home Health Agencies and Nursing Homes where the compensation relationships are not properly structured to avoid compensation ties to referrals or to avoid improper compensation limits (inducements) above and beyond market and Medicare norms.

A quick review of the above laws and their simplified descriptions suggests that conducting or continuing certain practices is a proverbial “dance with the devil”.  The question posed thus, is why does fraud rise to the level that it does and seemingly, on a broad basis within organizations that have the resources to understand the laws and their implications?  The answer is: Market and Economics.  Consider the following;

• Literally today in the U.S., there are more providers and capacity than true organic demand, when demand is correlated to “paying demand”.  Arguably, demand is probably sufficient enough to fill all capacity but when placed into the context of demand that pays in amounts equal or greater than the fixed and variable cost of providing the service, the “desired demand” is less than the current provider capacity.  If one were to re-frame demand to include payment equal to or greater than the fixed and variable costs of service plus a margin, the remaining demand is shaved lower yet again.  It is this level of demand that produces considerable competition among providers, often to levels where provider survival is at stake unless new sources of paying patients can be developed.  When cases such as the recent Qui Tams involving Vitas and Asercare arise,  one can quickly understand the inherent pressure within these organizations of developing new sources of patients, even if doing so runs afoul of Medicare anti-fraud laws.  In essence, the risk of organizational failure, poor performance, reduction in corporate value, etc. is greater than the risk of being inviolate of one or Medicare anti-fraud laws.  Taken marginally deeper, the truth is that there are simply not enough core (by definition under the Medicare hospice benefit) hospice patients at any one point in time, with adequate payment, to meet the overall capacity in the industry.  The same holds true for home health and is becoming more apparent in the SNF sector.
• Market areas and their demographics and economic conditions change faster than healthcare providers can react and thus, what was at one point a good market may no longer be (one need only look at Michigan and in particular the Detroit area and corridor areas).  Operationally, even for remote office agencies such as found in home health and hospice, healthcare service provision involves a certain level of fixed investment and for certain, infrastructure investment.  Providers that have witnessed market fortunes change and thus, paying volumes shift, are stressed to replace dying or dwindling volumes with other volumes.  All too often, I watch once unthought of marketing practices, taboo relationships, referral relationships, and specious coding practices develop almost in concert with market changes.  The alternative?  Shutter offices, lay-off people, write down investments or abandon buildings.  For providers that have gone this route, the pain can be almost unbearable as trying to exit a now dead or severely decayed market is far from fluid; potential users or buyers of infrastructure don’t tend to relish the opportunity to enter a decaying or impaired environment.
• While in former periods of economic decline, healthcare remained mostly immune from too much spill-over impact, the latest decline and continued stagnation violated past experience.  The reason is less one-side economically and more about a wider incorporation of elements that are causes and effects of the current economic circumstances.  Simply stated: This current period of recession and stagnation contains more elements of public policy causes than market forces.  This is particularly true for healthcare.  Though past economic periods evidenced rise and fall, recovering for market purposes in almost predictable fashion post fall, such is not the current case,  fundamentally due to the public policy issues that are dogging a normative recovery.  What this recession showed clearer than any other is that our economy is structurally unsound and our core time-held ideologies regarding the role of entitlements in a first-world leading society awash in smoke and mirrors; promises that are unsustainable and moreover, fiscally impossible to fund.  Thus, for providers, two forces are at work today (and for the immediate future) to constrain any real growth in payments and volume.  First, without a more robust growth in employment (non-governmental) and overall economic activity, those without health insurance will remain greater in number than historic (a payer source reduction) and programs reliant on tax revenues for funding,  facing mounting deficits (Medicaid and Medicare).  In economic periods when unemployment remains high, pressure mounts on governments to take-on a greater responsibility of social welfare, during a period where revenues via taxation sources are declining or on-balance, stable but lower than normal levels.  As the burden falls on entitlements, deficits increase to shift resources toward these programs.  Different in this period is that the balance sheet room to simply create more “credit” or “dollars” ( deficits) to shift toward entitlements is functionally non-existent.  The recipe today that on the economic front drives an element of fraudulent behavior is this.  One part fewer paying patients as benefit levels for health coverage have evaporated or waned.  Another part diminished resources from patients to pay for services, even where some level of benefit may still be intact.  Two parts an outlook of Medicare cuts and reductions.  One part current cuts to Medicaid payments, a program that already under-compensates providers for their costs of care.  And finally, three parts Washington policy makers awash in dysfunction, lacking fiscal clarity at each turn and an inability to generate traction on any programmatic plans of common sense that would create some level of stability and reassurance (the three parts are the House, the Senate, and White House).  To weather the malaise and compensate for what is and likely what will be, providers turn to paths creative.  The paths I too often see are by destination, a road to fraud.  Whether the activity is upcoding for patients that do not fit a higher level of reimbursement to engaging in contract negotiations at rates below Medicare allowable amounts to help offset reimbursement reductions, to billing at certain levels and providing care below the level billed to create a margin, each activity (and I could list many others) is at least in major part, a direct reflection on the current economy that is overlaid on healthcare.

The simplest answer as to “why” the issues of fraud and inappropriate care and billing arise (routinely) is Medicare itself.  Any payment system that rewards via higher payment, greater or increasing levels of acuity and utilization is ripe for provider organizations to chase the greater reward, even if doing so stretches the limit on necessary or warranted care.  Think pro sports.  Higher dollars go to players that hit more home runs than singles or for average.  In fact, less than a few years ago, the prize for the “long ball” was so good that players opted to cheat with chemistry as their true ability alone would not produce the highest return or largest pay days.  In economic terms the old axiom of “what gets rewarded gets done” applies.  Medicare has a long history of over-valuing certain types of patients, services, etc. while under-valuing others and thus, it is by its own rate and payment methodology, inducing a certain amount of “fraud”.  When the rearview mirror test is applied or the hindsight test (that which is 20/20), its fairly easy to look at groupings of payments, diagnostic codes and outcomes and find structural flaws suggesting inappropriate or unnecessary care was provided.  The remaining question then revolves around how to pre-examine each event or group of events to a level to assure that no inappropriate care or unnecessary care is rendered.  Truth be told, I’m not sure that this question is completely solvable.

In some cases or circumstances notable of late, the word fraud is attached or overtly implied, to events that likely aren’t fraudulent; more indicative of gaming the system.  For example, the Senate investigation of Amedysis, Gentiva, Almost Family, etc. was principally tied to an investigation completed by the Wall Street Journal involving therapy visits.  At the core, the implication was that these companies “maxed” the number of visits to trigger the highest level of payment.  Important to note is that the practice of “clustering” visits around the higher paying thresholds began when Congress created the higher paying threshold out of concern that “therapy” was being limited to home care patients.  Of additional interest is the role MedPac played in this event, reporting average profit margins for these organizations approaching the upper teens to twenty percent range. 

In the example above, the issue front and center is Medicare profit vs. appropriate level of profit (whatever level this is).  With hindsight being 20/20, it is easy to see that perhaps, some therapy was over-provided or in some cases, some patients were selected intentionally because of their therapy or rehab potential.  Did the agencies referenced intentionally seek to align their referral development practices and marketing approaches to attract certain patient types?  Of course and doesn’t every business do the same?  Personally, I have run organizations that did this and provided guidance to others on how to do this.  The reality is that some patients are better paying than others and regardless of whether an organization is non-profit or for-profit, the goal of any business is to attract paying customers and preferably, the customers that pay the best.  When the incentive is laid forth by Medicare that certain types of care and services come with higher rates of reimbursement, it is only logical that providers will seek to develop business models and systems that garner the highest rate of reimbursement.   If unnecessary care was the sole issue of whether these agencies did wrong, I won’t attempt to defend them but alternatively offer the whole health care industry as an example of unnecessary care provided across the spectrum.  By our nature and culture, we have come to believe that more is better.  An analysis of “unnecessary” in any area from drugs to surgeries to diagnostic tests to hospital stays and physician visits, many of which are/were paid for by Medicare, would clearly show this to a be a systemic problem and as categorized by CMS/OIG and the Senate, fraud and violations of the FCA (False Claims Act).

There isn’t a segment of the post-acute industry that I follow that remains honestly non-participative with regard to Medicare billing impropriety.  There also isn’t a segment that isn’t constantly lobbying Congress to continue to shovel more money into Medicare and generally, skewed toward certain categories, diagnoses or patient-types where allegations of fraud routinely arise.  Recently, CMS announced a rebasing of RUGs rates for SNFs, primarily targeted at certain therapy categories.  A huge cry of doom erupted from the industry and the industry tag alongs, principally therapy companies.  I read for days, prognostications of SNF margins turning negative, stock prices falling, layoffs, etc.  What was the real issue?  Medicare is being used by the industry to routinely subsidize revenue shortfalls that occur via Medicaid. In reality, as Medicare is a bit payer in the SNF world (less than 20% of all days of care), the admission that Medicare is subsidizing other shortfalls is the same as stating that Medicare is overpaying SNFs.   For CMS, the issue was about another “miss” in the ongoing game of trying to tie reimbursement to care needs to patient populations.  The industry was, as has always been the case, one step ahead in moving its practices to where the money is.  No different than the home health industry events, the SNF industry targeted certain types of patients and unquestionably, a  portion of the therapy provided may fit the hind-sight definition of “unnecessary” either by level coded or visits actually provided.  Stretching the diagnosis, seeking certain referrals, building relationships that are economically advantageous to various parties, etc., is as common in the SNF industry as it is in hospice, home health, and hospitals.

The latest hospice industry news event concerning Vitas and inappropriate referrals of non-terminal patients is indicative of a twist on an old theme, nothing more.  While this instance is truly creative by definition, involving an insurer and a provider, both potentially culpable in a scheme to shift costs and maximize reimbursement, it still only rises to the level of “old news”.  For years, the hospice industry has been rife with a similar dance played between hospices and SNFs.  Caught or most recently on display doing this dance is Aseracare.  In this dance, hospices circulate among SNFs with high Medicaid census and patient profiles marked by long-term dementia and debility; custodial care by definition.  The hospice, in need of additional patients, tells the SNF that it can qualify many of these types of patients for the Medicare  hospice benefit and in exchange, the SNF will continue to keep the Medicaid daily rate but  the hospice will assume drug costs, supply costs, even DME costs plus augment the staffing.  As a kicker, the transition of the patient to the care of the hospice provides some regulatory relief to the SNF as now the overall care of this patient shifts to the hospice and documentation, assessments, and other paperwork otherwise required by the SNF no longer apply.  As expected, a win-win of sorts appears.  The hospice gets daily rate from Medicare, the SNF the daily rate from Medicaid, the hospice census improves, the SNF census remains the same, etc.  The real winner here however is the hospice as an SNF patient is fairly inexpensive to care for as the SNF provides much of the care infrastructure.  Visits to SNF patients are typically fewer than a comparable home-bound/community patient and by the nature of many of the patients qualified in this scenario, the length of stay on hospice is considerably longer – a nice stable, revenue stream.  Using the 20/20 hindsight view however, shows that a preponderance of these SNF patients don’t fit much of the Medicare hospice criteria and in the acid test category of likely terminal in six months or less, a plausible argument can’t be made.

In the quest for higher reimbursement in an environment facing Medicare spending minimization, control and cuts. behaviors and tactics become irrational and by their very nature, borderline or outright fraudulent.  The most rampant that I see is upcoding or creating phantom diagnoses and need where none truly exists.  The hospice illustration above is one such example.  Others that are common include “stretch-rugging” by therapy companies and SNFs, discharging dually-eligible Medicare SNF patients to hospitals when the medical needs (and supposed costs) increase, and back-dating orders.  In some cases, the activity is subtle such as SNFs that are willing to take below fee-schedule discounts for laboratory and radiology services for Medicare residents, even though doing so could lead to a Stark violation for the SNF.  The whole chase is about trying to maximize the net revenue under Medicare, either by increasing the volume or minimizing the costs associated with caring for these patients.

Still, the question begs as to “why” this level of fraudulent or inappropriate activity persists and, in-spite of well published examples of providers getting caught.  As I wrote earlier, a portion is due to the fundamental flaws inherent with Medicare, how it pays and the program benefit structure.  Chalking it all up however, to Medicare while easy, is like solving half of a crossword puzzle and calling it done.  In my follow-up post, I’ll provide a bit more clarity as to what I see, are the reasons “why”.

For readers somewhat unfamiliar with the “devil in the details” of this issue, here’s a brief summary.  The current system, based on a formulaic provision known as the SGR (Sustainable Growth Rate) enacted in 1997 as part of the Balanced Budget Act.  The purpose of the SGR is to constrain the rate of expenditure growth under Medicare for fee schedule related services (physicians being the most prevalent).  Under this system, spending is constrained by annual GDP growth, growth in the number of Medicare beneficiaries, inflation in practice costs for physicians and other outpatient providers, and spending required by regulation or law.  Weighting these four factors leads to a change (plus or minus) in the schedule of payments that is fundamentally influenced by economic activity or more precisely, changes in GDP.  In simplest terms, if spending in any one year exceeds GDP growth for the same period, the formula looks to reign in spending via cuts in future years.  As volume is a contributor as is inflation in practice related costs, the issue becomes somewhat of a ratio analysis; the rate of change in one is offset somewhat by the rate of change in the other or others.

In the earliest years of implementation, GDP growth was healthier than programmatic outlays (the target).  The net result until 2001 was a series of fee schedule increases, often at rates greater than inflation for the affected year.  Since 2001, expenditures have exceeded the growth target (fundamentally GDP growth) and the formula has triggered cuts.  With  the exception of 2002, Congress has acted to override the required cuts.  Each action by Congress, up to 2007, produced a growing negative balance under the SGR methodology, leading to the current forecast of required reductions equalling 27.4%.  Given the requirements under current law and the SGR, forecasts for 2013 and 2014 foreshadow additional cuts.

Logical and illogical arguments abound as to why the system has failed so dramatically; perhaps most logical is that payment discussions  (increases and decreases) correlate with beneficiary access.  Illogical is that payment reductions impacting certain specialties would lead to wholesale access problems for heart procedures, neuro procedures, etc. Most acutely impacted would be primary care access, already a significant problem in rural and distinct urban areas.  Additionally, access to other fee schedule providers such as outpatient therapies would certainly be negatively impacted.  In the end, Congress has proven unwilling to allow cuts of the current magnitude to roll forward.

As January 1 is rapidly approaching, here’s my insight into what happens next.  First the backdrop of reality.  This issue is square on the tables of the group (Congress) that proved incapable of finding $1.2 trillion in deficit reduction over ten years.  Being honest, finding $1.2 trillion over ten years is akin to finding apples on the ground in large orchard; this isn’t even low-hanging fruit.  Further, this is an election year issue during a period where the economy is stuck in near-neutral.  Finally, political cover is scarce and the back and forth rhetoric is furious; tough to find cooler heads.  The best that will come forward is a quick D.C. two-step; a patch to resolve the immediate fear of cuts followed by other patches that serve the same purpose but in pieces, appear small while continuing the saga of an aggregate amount of dollars that simply, won’t go away.  In as much as it is time or has been time long past, to fix this issue, nothing immediate will occur of this sort.  For providers, more nail chewing for Christmas.

I have a colleague and true friend who was recently downsized from a deteriorating health system due to their financial and operational mismanagement.  This gentleman was in charge of Marketing and P.R. for this organization.  In spite of his best efforts and gifts, he was hamstrung by the financial condition and continued deterioration of the organization, literally unable to do his job due to the reputation and care problems, staff turnover, poor community reputation and consistent resource shortage.  He became a victim of circumstances beyond his control.

As I said earlier, I rarely attest for anyone and never in writing of this sort.  This is a first.  The reason?  This gentleman is gifted, a true professional and a consummate, stand-up guy.  He became a victim of circumstances because he was too principled to walk when he should have, even in spite of my counsel.  He finishes what he starts, even if not given the tools or support to do so.

This all said, here’s the inside information.  His name is Steve (I’ll withhold further unless requested).  He has thirty years of health care marketing and P.R. executive experience within hospital systems (one being the largest in the state) and in the post-acute environment (seniors housing, assisted living, SNFs, hospice, etc.).  He comes from a journalism background originally; television principally.  He knows media, public and community relations and can market and sell health care.  He is a gifted writer and has worked all angles of health care P.R. and Marketing from spokesperson to damage control to mergers and acquisitions and new product launches.  He’s even overseen philanthropy and fund development.  Aside from me, his references are impeccable and he’s well-known in the health care community in his market areas.  I have recruited him in past positions and would without reservation, hire him again.

To the point, he’s networking and available, including possible relocation.  I know of few other health care marketing people with his breadth of experience and track record of success.  To my readers, all of whom I appreciate, and my professional colleagues whom I equally appreciate, your leads or insights on Steve’s behalf would be deeply appreciated.  If you have any ideas or interests you would like to share and/or learn more about Steve (resume, etc.) or talk directly with him, drop me an e-mail and I will make it happen.  My e-mail is Hislop3@msn.com.

Thanks for indulging my deviation in content and again to all, thanks for reading!