CMS Reverses Course on Independent Consulting Pharmacists
In a move that most industry watchers including myself believed was unlikely to occur, CMS decided to reverse course on a proposal to require SNFs to have separate relationships for dispensing and consulting pharmacies/pharmacists. CMS publicized its decision yesterday.
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.
Post-Acute Issues Worth Watching
In my recent work and across recent discussions, phone conferences, etc., I’ve encountered a thematic trend; a circle of issues or as in reference to geese, perhaps a gaggle. Doing a bit of research and sifting through notes written over the past few weeks, here is what is trending.
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 Fraud and Why; Part II
Last week I published a post regarding Medicare fraud that is occurring in the post-acute industry. The post is available at http://wp.me/ptUlY-ak . At the end, I indicated that I would provide a follow-up post; a closer piece more succinct on why the fraud trend is heating up and what the drivers for this trend are. In short, while the two posts (this one and the one from last week) can stand-alone, readers with interest in this topic are advised to read both.
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.
Medicare, Fraud and Why: Perspectives on the Post-Acute Industry
What never ceases to amaze me is the amount of post-news discussion that occurs when certain issues rise to the front-page (or near the front page). Seemingly, industry side-liners awaken and look in disbelief that one major provider organization or another is again, embroiled in some OIG investigation, lawsuit or official inquiry concerning their Medicare billing and/or care provided to Medicare patients. The word “fraud” is tossed out quickly; the shock value of vulgarity at a cocktail party in polite company is expected. Statistics from qualified and unqualified sources burst forth claiming, some correct, that approximately 20 to 30% of care paid for by Medicare is inappropriate, unwarranted, unnecessary or down-right fraudulent. Truth be told, the unwarranted, inappropriate, and unnecessary talk is like Monday morning quarterbacking; an easy sport to engage in when all the facts are visible and the outcomes known. The real question that is rarely, if ever addressed, is “why” do these issues consistently arise and most often, among the same provider organizations.
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”.
OIG on Hospice: Restructure Hospice Payments for SNF Residents
This past week, the OIG released a report that represents a more definitive study of hospice payments and utilization trends under Medicare. The report is effectively a follow-up to recommendations made in MedPac’s annual report(s) to Congress. The report provides a review of OIG’s analysis of the growth of Medicare covered hospice patients over the period 2005 – 2009, specifically as such growth relates to the provision of Hospice services within SNFs. For the last three to four years, MedPac and to a lesser extent OIG, have commented about the rapid growth of hospice utilization under the Medicare benefit and the corollary relationship between this growth and SNFs, particularly as the same relates to for-profit hospice organizations. For more on MedPac’s report to Congress and their recommendations/analysis regarding Hospice, see my related post on this site at http://wp.me/ptUlY-8e .
Per OIG, Medicare spending for hospice services provided to SNF residents increased 69% between 2005 and 2009. In total dollars, the amount grew from $2.55 billion to $4.31 billion. During this period, the number of hospice beneficiaries residing in SNFs grew by 40%. Not surprising, during this same period the total number of hospices participating in Medicare also grew; the growth dominated by for-profit organizations. According to the OIG, hospices organized for-profit received higher levels of reimbursement on average (29%) compared to non-profit and governmental operated hospices.
Specifically related to hospice services provided to SNF residents, 8% or 263 hospices had two-thirds of their cases comprised of SNF residents. Of this group of 263, 72% were or are, for-profit. In total, 56% of all hospices participating in Medicare are for-profit. Comparing reimbursement or payments and utilization, the group that incurred two-thirds of their cases via SNFs was paid more per beneficiary ($3,182) and the average length-of-stay in “benefit” was three weeks longer than the median average length of stay across the industry.
| Table 1: Medicare Hospice Care from 2005 to 2009: Growth in Spending and in Number of Beneficiaries | |||||
| 2005 | 2009 | Percentage Increase | |||
| Spending on hospice care in nursing facilities | $2.55 billion | $4.31 billion | 69% | ||
| Spending on hospice care in all settings | $7.92 billion | $12.08 billion | 53% | ||
| Number of hospice beneficiaries in nursing facilities | 240,000 | 337,000 | 40% | ||
| Number of hospice beneficiaries in all settings | 871,000 | 1,085,000 | 25% | ||
| Source: OIG analysis of CMS data, 2010; and OIG,Medicare Hospice Care: A Comparison of Beneficiaries in Nursing Facilities and Beneficiaries in Other Settings, OEI-02-06-00220, December 2007. | |||||
As I have written before, the dominant profile of SNF residents enrolled in hospice includes Medicaid as the primary payer source, a primary diagnosis for SNF residency of Alzheimer’s disease or some other form of dementia or mental disorder, and the SNF in which they (the residents) reside has a payer mix that is at least 42% Medicaid. Additionally, the SNF resident has resided in the facility for a period of time (months) prior to enrollment within the hospice benefit. None of this information is new or should I say “news”. The SNF industry has quickly learned that transferring a certain liability for the cost of care of a Medicaid resident (drugs, certain supplies, some staffing) to a hospice that receives a routine hospice benefit under Medicare is financially advantageous, particularly since Medicaid continues to pay for the room and board costs of the SNF. In fact, the vast majority of state plans do not coordinate benefits with the Medicare Hospice benefit, leaving the facility to collect the full Medicaid rate for the resident’s stay while transferring an increment of care costs to the Hospice. Clearly, this niche is advantageous financially for the Hospice and the SNF. The Hospice, given the infrastructure of caregivers and other on-site SNF staff, can minimize its visits (substantially less in number than provided to a typical home-bound patient), effectively increasing its marginal profitability. The SNF transfers certain costs to the Hospice, now paid as part of the Hospice benefit while still receiving the total amount of the Medicaid payment. While I won’t say this makes Medicaid a profitable payer, it certainly increases the marginal revenue contribution from a group of now, hospice covered residents. As the OIG and MedPac have observed, the SNF resident hospice patient tends to be a patient with a terminal condition but arguably, one that is not necessarily imminent and/or in some cases, even clinically supported. The end or net result is a patient profile that stays longer (covered) under the Hospice benefit.
Concluding within their report, the OIG makes two recommendations that on their face, don’t vary much from recommendations made by MedPac. Their first recommendation is to monitor the activities of hospices with a high percentage of cases occurring in SNFs. Their second recommendation is for CMS to alter or lessen, the level of reimbursement paid to a hospice for care provided to an SNF resident. The report contains no recommendation of “how much” less. MedPac in comparison has recommended that the Hospice benefit be scaled for SNF residents – higher on admission, less in the middle term of the stay, and higher again close or precedent to death. For MedPac, this method more closely reflects the resources used or costs incurred by a hospice during a patient’s length of stay.
As I have indicated, this information is not new nor are the concluding recommendations. The Medicare Hospice benefit is dated and not reflective of how terminal care occurs and/or should occur. The system is ripe for fraud as CMS has not taken its time to scrutinize claims or the validity thereof, particularly for diagnoses that traditionally do not correlate to quick or timely death. All too many for-profit, non-hospital aligned hospices have realized that sans the SNF resident market, the actual hospice market is fairly limited and not sufficiently deep to support the current number of agencies. In other words, a hospice organized for-profit would likely have a difficult time sustaining its margins and building a sufficient base of business without SNF contracts. Given this reality, and the reality that SNFs with large Medicaid payer percentages and long-term stays among its residents also benefit via a favorable hospice relationship, the market reality becomes the same as concluded by the OIG. Changing this paradigm won’t occur until three core elements of reform pertaining to the Medicare Hospice benefit occur. First, refined clarity of diagnosis appropriateness and stronger requirements on re-certification for additional benefit periods. There exists sufficient clinical information to create clarity, even for end-stage Alzheimer’s/Dementia diagnoses. Second, payment changes that take into account coordinated or bundled payments for Medicaid SNF and private-pay residents. Neither the SNF or the Hospice should benefit disproportionately when a patient is on hospice. Third, requirements of disclosure for all hospice/SNF relationships and contracts and requirements that no one hospice may provide exclusive services to an SNF. Too many of the most egregious situations I have encountered occur when one hospice has entered into multiple SNF contracts, dominating the market and creating blatant ”sweetheart” relationships. Additionally, CMS must take proactive measures to perform timely claim reviews of SNF residents receiving hospice services – for all diagnoses – particularly involving disproportionate case-mix hospice providers (hospices with large number of SNF residents enrolled with certain qualifying diagnoses such as dementia, failure to thrive, and Alzheimer’s).
Hospice Contracts in SNFs: Survey Reminders for the SNF
Due to a fair amount of travel recently, I’m a tad behind in pushing out updates, etc. Despite my rather harried schedule, I have kept track of questions, issues, etc. and in the next week to ten days, I will endeavor to get caught up. Please know that I do appreciate the comments and questions from readers and colleagues.
A theme that I get queried on quite a bit involves the relationship between Hospices and Nursing Homes, particularly when the SNF enters into a contract with a Hospice for the provision of hospice care to its residents. Suffice to say that I frequently, and I have written on this subject before ( http://wp.me/ptUlY-3W ), hear concerns and misunderstandings among both providers (Hospices and SNFs) about contractual issues, care issues, documentation issues and compliance issues. The most recent set of questions or issues comes via my wife who is a clinical consultant (RN) in long-term care. While working with a client SNF on pre-survey preparations, she saw a number of things wrong from a compliance perspective that the SNF simply missed or misunderstood in regard to its responsibilities for its residents placed on hospice service with one or more of its hospice contractors.
Below I’ve outline the required compliance elements for SNFs when they have residents in their facilities that are on service with a Hospice agency (of course, via a contract). These elements are taken right from the federal Conditions of Participation for SNFs and represent the essential requirements that surveyors are tasked to review. NOTE: For SNFs it is imperative to remember that even though the primary responsibility for the careplan for a hospice patient in an SNF belongs to the Hospice, the SNF cannot transfer any compliance requirements that are its responsibility under the law to the Hospice. The all too common theme that I hear of “he/she is now on hospice and therefore, is no longer an SNF resident” is false.
- The Hospice and SNF must communicate, establish, and agree upon a coordinated plan of care for both providers that reflects the hospice philosophy, the individual’s needs, and the unique living circumstances of the individual in the SNF. The plan must address pain and symptom management and be revised and updated as necessary to reflect changes in the individual’s care needs. The plan must also identify the services that each provider will deliver in order to meet the needs of the patient and his/her desire for hospice care. NOTE: Regardless of this requirement, the Hospice is still required to provide the core hospice services (nursing, social service, bereavement, etc.) as stipulated under federal law. The subtleties lie in the definitions of duties as delineated in the plan of care.
- The Plan of Care must reflect the following:
- The participation of the hospice, the SNF and the resident and/or responsible party
- The plan of care provides for pain and symptom management and clearly provides for (or has) updates reflecting the changing needs of the resident
- Medications and medical supplies are provided for by the Hospice as required to care for the patient’s/resident’s terminal illness (requirement that the Hospice provides (or pays for) the supplies and meds related to the care of the terminal condition).
- The Hospice and SNF communicate with each other when changes to the plan of care are required.
- The Hospice and SNF are aware of each other’s duties and responsibilities in meeting the plan of care.
- The SNF’s services are consistent with the plan of care and in coordination with the Hospice. The SNF resident/patient should not experience any reduction in SNF services due to his/her hospice status.
- The SNF offers the same services to its hospice residents as it does to all other SNF residents not on a hospice service. The resident retains the right to accept or decline services offered by the SNF.
- If the SNF has concerns with the provision of service from the Hospice and the same is not satisfactorily addressed by the Hospice, it is the responsibility of the SNF to inform the appropriate licensing authority that has oversight of Hospice’s in the state.
The biggest key to take away from the above is that the SNF and Hospice need to develop a very clear plan of care, hold each other accountable for the delivery of services as outlined under the plan of care, and clearly understand each other’s duties and responsibilities under the law and as detailed in the plan of care.
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.
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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.
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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.
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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).
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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.
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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;
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No look-back period
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Concurrent therapy rules
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Highest Rehab groups (extensive services) require the patient to be on a ventilator or require tracheostomy care or have an infectious disease.
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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.
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Emphasis on ADL scoring is key in terms of attaining higher groups within categories as is the documentation of depression (if present).
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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.
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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.
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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.
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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.
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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.
Due Diligence and Acquisitions: A Review of Common Pitfalls
A regular, although not necessarily routine, exercise that I go through is a re-evaluation of recent acquisitions in the senior housing/long-term care industry to see “how they are doing or performing” post transaction. Perhaps the primary reason that I do this is my curiosity regarding the effectiveness of the due diligence process and the accuracy of the valuation or economic value proposition created by the acquirer as translated into purchase price. In short, I’m always curious as to whether the buyer got what he/she/they expected at the anticipated cost (purchase price plus other investments required over the first year or so) he/she/they expected to pay. As the mechanics and theory behind valuations and due diligence vary between deal to deal (from what I have observed), it is interesting to look at “how things are turning out” once the feeling of accomplishment and the haze of the deal have passed.
When things don’t go well or aren’t going well at the one year mark, something I find more common in health care transactions (SNFs, Home Care, Hospice, etc.) and less so in Assisted Living or Senior Housing, it nearly always seems to a be a flawed due diligence process that led to an over-estimation of value. More succinct: Because the due diligence process missed too many issues the price became over-stated as the costs associated with achieving stable operations were under-estimated or the classic, “he/she/they paid too much for what they got”. Where I notice the largest number of errors occurring during due diligence is when the due diligence is treated as a justification for the purchase price or, a process of validation rather than a process to quantify the economic risks and benefits that are modifiers to the valuation and ultimately, to the negotiated price. Proof of a what a friend of mine always says; “It doesn’t take a rocket scientist to overpay”.
Separating the issues a bit, valuation is effectively a financial quantification of the relative worth of the business as it stands today, including business/commercial value (cash flow, revenues, expenses, etc.) and tangible and intangible asset value (bricks and mortar, equipment, trademarks, name, etc). When Buyers capably test the values against their own business models and the available universe of comparable values, the Buyer has established a range of possible purchase price points. Ideally, within this range lies a number that the Seller will accept or that matches closely, the Seller’s asking price. At this stage, I would argue that a Buyer should never impute any assumptions on a go-forward basis about “how much” expenses could be lowered or revenues increased to massage an improved value. A wise Buyer would best assume that upon acquisition, almost all aspects of the business “as is” are set as constant and these same constants are the financial constraints that place the boundaries on the project’s range of values. This is not to suggest that a pro forma assumption about “go forward” operations that assumes lower debt costs (if applicable), some efficiencies via scale and some reduction in overhead may not be applicable (if in fact they are real and quantifiable). It is however, a caution based on too many valuations completed at the behest of or by Buyers, that include unrealistic assumptions of census increases, revenue increases, expense reductions, etc., that are hardly quantifiable or even in fact, justified for the particular transaction. To illustrate: A few years ago I helped an out-of-state buyer get into a particular nursing home transaction (nursing home was for sale). The buyer owned nursing homes in other locations so the industry was not totally foreign. The location of the facility was decent but the plant was old and the facility’s reputation marginal. The asking price had yet to be set “in stone”. The buyer, accustomed to paying higher prices in other areas, began talking numbers that were far too high for the project, justifying the price with claims of significant improvements in Medicare census and Medicare revenue per day that were unrealistic for the facility (never happened at this location before) and were beyond the norms of the market area. While I tried to counsel the buyer to be more judicious, the buyer went ahead and acquired the facility. Within two years, the buyer abandoned the site, having substantially over-paid, never achieving the projections for revenue and census “touted” for the facility.
Due diligence encompasses the financial valuation but extends the tasks into a level of greater detail that adds or subtracts (creation of debits and credits) from the range of possible values/prices. In the best of due diligence processes, the methodology also incorporates a review of risks and assists in quantifying costs associated with these risks. In reality, due diligence should attempt to paint a complete picture of all elements of the transaction, providing final quantification of the price and qualifications to the transaction that must be accounted for by the buyer. Thought of or approached this way and using the example I presented above, the buyer would never have paid what they paid for the facility and would have realized that achieving a stable, successfully operating SNF in that location would take them years and significant financial and human capital investments.
While buyers tend to approach due diligence and valuation different, each varying upon a theme and using their own methodology and checklists, I’ve found that the problem transactions that I follow each tend to miss one or more of the following elements. Some of these elements are absolutely critical if the buyer is out-of-state or out of the area and the acquisition represents his/her/their first foray into a given market area.
- Economic Location Analysis: Not to be confused with market research principally relying on demographics, this analysis looks deeper into the key economic location elements that are critical to the success or failure of the transaction at the given purchase price. For example, location analysis would quantify labor resources and costs – key elements for a healthcare provider. Location analysis would also quantify the strength and depth of referral patterns and the quality of such referrals by desired economic value (payer sources, etc.). Location analysis also examines the market economy and the up or downward trends that are present. Too many providers over-estimate the value of a particular location without understanding the economic factors that create or detract from the project’s value.
- Provider Status Assumption Risks: Buyers that are acquiring healthcare projects with existing Medicare business and expecting to assume the former provider’s Medicare number (most common in acquisitions) need to understand that the assumption of the Medicare number brings the assumption of risk. While it is true that lawyers will create indemnities and warranties that seek to limit the buyer’s assumption of risk, using these clauses to enforce terms when risks are present or encountered is often an expensive and fruitless exercise. In other words, the seller may no longer exist or as is often the case, will require the buyer to use an expensive legal process to enforce the indemnity and warranty provisions, all while the compliance requirements are inescapable to the current owner. Preferably, although not an expeditious process, buyers should obtain a new provider number and status for the project from CMS, targeted effective on the change of ownership – for Part A and Part B as applicable. It can be done as I have done it with each of my “former” acquisitions. By not assuming an existing provider number, the buyer avoids a whole host of issues and compliance problems that may or may not be disclosed or even known by the seller. CMS, as one would suspect, will only chase the “owner” of the existing provider number when problems arise or are detected and if that is the new owner, regardless of whether the issues pertained to a former operator/owner, the new owner is expected by CMS to be the sole source of remedy. CMS does not care about the terms of the deal between private parties.
- Billing Risks and Revenue Accuracy: This is a problem area that I see all to frequent. The buyer relies on the seller’s representation of revenues and does no further testing. I lost count of how many times buyers relied on accountant prepared or audited statements as being “gospel” only to find upon ownership that the revenues were over-stated. Why? First, even during an audit, accountants do not devote sufficient time or have often, sufficient expertise to analyze, the accuracy of the Medicare claims submitted by the seller. The typical tests are for basic paper-trail elements such as RUGs groups in SNFs matching the billing, matching the revenue postings. What needs to occur is a much more in-depth, technical review to determine if the Medicare claims that correlate to patients are in fact, correct. Again, I have seen circumstances where the Medicare revenue per day is grossly incorrect as the seller had no idea how to properly bill Medicare claims. Last, I rarely see buyers benchmark the revenue and occupancy numbers against area comparables. Payer mix and revenue per day numbers across the industry tend to fit pretty narrow ranges and when, in any transaction, they are out of this normative range, a red flag should rise.
- Compliance Risks: Another area that I see cause buyers problems time and time again. Compliance with certification, survey and accreditation standards is a function of past and yet to be. Acquiring a provider with past problems in these areas requires very careful analysis and discussions with regulatory authorities. Regulators need to be queried extensively and even, negotiated with when the buyer is acquiring a provider with a record of moderate to serious non-compliance. Don’t have the discussions or do the additional analysis and assuredly, run into compliance problems that cannot be deemed as “owned” by the prior owner/operator. Likewise, acquiring a provider with a reasonable or decent history doesn’t mean that the current status of compliance is clean. Sellers tend to wane on their commitments to compliance the closer the time comes to deal “certainty” or closing. A fair amount of time may also have passed since the current owner was re-accredited or surveyed. Complaints may be pending requiring regulatory review. What is certain is that once the acquisition is complete, regulators/surveyors will descend on the new owner in fairly short order. Take the time necessary to thoroughly review the past and current status of compliance.
- Market and Reputation Risks: Simply stated: How is the current provider viewed within the market? New ownership doesn’t mean new perceptions about the quality of the current operation. If the current operation is viewed marginally or even negatively, a new owner will have a great deal of work ahead to establish an improved or new reputation. If the business relies heavily on referrals (and most health care provider organizations do), it pays to check referral sources and other common influencers to understand the “market” perception that is in place.
- Environment and Infrastructure Risks: Assuming that acquiring an existing provider means that existing brick and mortar and equipment doesn’t require improvements immediately can be a false assumption. Existing providers may operate under waivers or as in some states, new ownership necessitates that the entirety of the project be brought to current code with the issue of a new license. Such is the case in Wisconsin. A thorough review of the environment and the infrastructure tied to building code requirements, completed by qualified individuals/organizations will minimize this risk.
- Employment Related Risk: Here I am not talking about the legal risks associated with handling employment issues during the closing processes. The risk that I am talking about occurs when buyers make one of two (or both) assumptions about the quality and stability of existing management personnel and/or, their own management personnel. The error I see too often made occurs with out-of-state buyers not acquiring sufficient local or area expertise and/or, having enough local support available via contractors (consultants, etc.) to ease the transition. Each market area and certainly, each state brings forth nuances and issues that require stable management and unique knowledge requirements. I’ve seen too many new owners underestimate the resources needed and over-estimate the ability of their management to handle new areas and states foreign to them.
Compliance, the Courts and a Risk Reminder
In previous posts I’ve written about the need for providers in all industry sectors to fully understand the compliance and legal risks that are inherent to the appropriate industry sector, as well as to health care today in general. As someone who has been immersed in health care operations and health policy for the past quarter century, I can honestly say that I have not seen a period more perilous for providers and quite frankly, I perceive that it will remain risky and perhaps escalate in the near future. Consider the following;
- There is renewed vigor and funding in Washington to root out perceived waste and fraud, principally focused on Medicare. Every sector that I follow is a target for the OIG and/or Recovery Audit activity. In spite of GAO findings that Recovery Audits have fallen short of achieving their targeted goal of reducing $231 million in over-payments or improper payments, the action from CMS is to “improve” the system or in other words, increase the amount of personnel and resources devoted to this task. In July, the Department of Justice announced the results of a multistate Medicare fraud investigation implicating 90 individuals, tied to a total of $251 million in Medicare payments. The investigation involved doctors, nurses, therapy companies and others. The investigation was part of the new Health Care Fraud Prevention and Enforcement Action Team.
- According to a recent report from the Congressional Research Service the number of new agencies, commissions and boards created under the recently passed Health Care Reform law is “unknowable”. The Center for Health Transformation headed by former speaker Newt Gingrich estimates that 159 new agencies, offices and programs were created under the PPACA and the Joint Economic Committee claims 47 new bureaucratic entities were created. What this all means in brief is “more regulation”, not less and in most cases, regulations that haven’t even been written yet. Most troubling is that the PPACA seemingly creates bundles upon bundles of additional regulation but is virtually moot on any current regulatory relief or reform. Two interesting charts regarding the bureaucracies created under the PPACA are available at http://www.healthtransformation.net/
- Existing regulatory burdens are already steep and increasing, regardless of the PPACA. Take for example, the annual CMS rule making process regarding rates and payments. Wholesale changes in Medicare assessment requirements and payments are forthcoming this fall for the SNF industry. The home health industry has also seen its share of Medicare reimbursement changes and required assessment and documentation changes under Medicare imposed by CMS without any legislative activity. New HIPAA requirements regarding electronic communications came into play this year, new self-disclosure rules under Stark and the False Claims Act, as well as dozens of other agency regulations.
- Non-health care specific laws also change constantly and impact providers. Whether these laws are labor related, tax related, state laws, local laws, commerce laws, building codes, etc., all are in some way related to the general business conducted by providers.
- The court system (or more appropriately, the plaintiff’s bar) has become more actively focused on the provider side of the health care industry. In just the first seven months of this year, two significant class-action suits have laid new fertile ground that providers should both fear and understand. The first occurred in California where a jury awarded plaintiffs $613 million in statutory damages and $58 million in restitutionary damages (punitive damages not yet determined) against Skilled Healthcare Group, a proprietary nursing home chain. The award was predicated on a 4 year old complaint that the organization failed to staff its facilities to meet the State of California’s minimum staffing requirement of 3.2 nursing hours per patient day at 22 of its California facilities. The ”rub” in this case for providers is that no harm or actual damage theory was applied to the “class of patients” affected or in other words, the residents of the 22 facilities were never effectively damaged in total yet, the jury awarded the maximum damages allowed under California law. The result is that, even before punitive damages are assessed, the damage amount is larger than the value of the organization or more simply, if the damage amounts remain unaltered, Skilled Healthcare is bankrupt. A final piece of irony? The regulatory system that oversees nursing homes in the state took no specific action against Skilled Healthcare to prevent the “understaffing”. The second case comes from the home health industry where as of today, three class action suits have been filed against Amedysis, the industry’s largest proprietary home health company. The suits were born as a result of a Wall Street Journal article and a subsequent Senate Finance Committee inquiry into the Medicare billing practices of large, for-profit home health companies. The fundamental allegation is that Amedysis, along with other major for-profit companies, used the Medicare rules in-place to essentially increase their revenues. The fundamental issue pertains to therapy visits and a provision under Medicare two plus years ago that provided for incentive payments to be made to agencies based on the number of therapy visits (more visits, higher payments). The basis of the suit against Amedysis (clearly a target because of its size, its focus on Medicare patients and the Wall Street Journal article) is that the company overstated its revenues and once investigated or discovered, the same activity now disclosed caused shareholders to lose value as a result of falling stock prices. In a unique twist, the suits use Sarbanes-Oxley, a securities related law that requires senior corporate officers to avoid activity that would result in unethical conduct or malfeasance, harming shareholders. As in the Skilled Healthcare case, the irony here is thick. First, there is no allegation that patients were harmed or that care was rendered inappropriately. Second, the activity of Amedysis was not under investigation by CMS or the OIG concurrent to or before the filing of the suits. In other words, the government’s own enforcement activity was moot on this issue and there is considerable question as to whether what Amedysis did was even improper given the rules that were in effect at the time. Third, virtually all providers practice Medicare maximization or that time-honored practice of using Medicare’s own rules concerning reimbursements to maximize the amount of reimbursement available to them. If the Amedysis case is the standard, virtually every Medicare provider would in fact, be guilty of similar conduct dependent on the industry and the applicable reimbursement rules.
Taking the above into account, and it is truly an overview only, providers need to recognize the gravitas of the environment and the totality of legal and compliance risks that are present and mounting. Recognition and identification of the compliance requirements per applicable industry sector and the legal risks associated with the business and operations encompassed is where providers can begin to respond, not react, and develop the tools, processes, plans and ultimately culture, that mitigates risk and creates effectively compliant operations (“effectively” because totally compliant is improbable if not impossible). Below are some time-honored tips and approaches for creating an organizational environment that achieves high-levels of compliance and mitigates legal risks (I ran a very large, multi-site, complex organization for twenty plus years and never had a lawsuit).
- Within each industry sector there are tons of regulations that in theory, require daily compliance. Likewise, within each industry sector, there are compliance themes and “key” compliance requirements. Focus on the key compliance requirements as activities, tools, and systems that drive compliance in these areas mitigates 90 plus percent of the compliance risk and in all cases, the risk that is expensive and serious. I like to think about the core intent of compliance and create understanding and organizational capacity and systems around these intents. For example, in the areas of patient care, outcomes are the baseline of regulations. Regulations focus on documentation of outcomes, prevention of negative outcomes, and actual standards for outcomes. Systems which assure a close match with the regulatory expectations and are part of an organizational QI process (constantly) achieve the regulatory intent and create a “halo” of compliance. The same can be said for billing practices under Medicare and Medicaid, privacy requirements under HIPAA, etc. Polices are insufficient to achieve the requisite level of compliance required and quite often, do nothing more if not integrated within organizational practices and systems, than create more compliance risk.
- Legal risks are harder to quantify but in some cases, easier to generally address. Take the two legal cases I illustrated above. In the first case, if the staffing requirement in a state is 3.2 hours per patient day, any provider flirting with these levels consistently is asking for trouble – avoid the risk entirely. In the second case, as I pointed out, Medicare maximization is a time-honored tradition for providers. What is not time-honored or allowable, is any activity that suggests that the provider is routinely and consistently, seeking to “game” the system. I see too many therapy companies and SNF providers that merely “up-code” all residents into Ultra High therapy categories as a means of achieving the highest Medicare reimbursement per day. I see too many providers stress the justifications for additional days, manipulate the rules to extract additional benefit periods, and create care requirements and documentation that is not supported by the actual needs or conditions of the patient. These activities, when pervasive and constant, create a legal risk that is tough to impossible to defend. A better approach is to develop strategic and operational plans that maximize revenue the right way. The right way is by achieving high-levels of organizational capability in delivering the right care to the right patient at the most efficient cost levels possible. It also means developing marketing plans and programs that attract the ideal patient mix that produces the highest possible revenue profile for the organization. With respect to employment, avoiding significant legal risks means dealing with employees within the constructs of employment law. This doesn’t mean don’t fire or don’t discipline. It means fire and discipline effectively and only for consistent, documented and legally permissible activity. A core or key requirement is to effectively train and only employ, capable and competent management that know and understand the applicable labor laws and are capable of using effective hiring and supervision methods that produce organizational results without violating company policy or the law.
- Organizationally, the primary methodology to achieving a high level of compliance and to mitigate legal risks involves creating an organizational culture that focuses on compliant activity and solid risk management principles. While not exhaustive, here are some key elements that are part of the culture.
- Internal and external education and audits that identify risks and provide solutions. Developing organizational thought-leaders and subject matter experts provides key resources that can be deployed to solve problems, identify risks, and provide education.
- Encourage reporting and self-disclosure and reward the activity. Management must be open to hearing “what is not right” and providing reinforcement for this activity.
- Integrate compliance and risk management as part of strategic planning and allocate budgetary resources adequate to address the risks. While risk prevention always appears to be money with another use, it is far cheaper to prevent compliance and legal risks than it is to bear the costs after an event has occurred.
- Reward the concept and ideology of “doing the right things” first as opposed to those things which may be short-term, expedient or more profitable.
- Benchmark and test key indicators constantly. For example, if your Medicare census and revenue per day is higher than industry norms and/or market norms, make sure that such results are tied directly to organizational performance and activity, not to billing creativity.
- Provide ownership to compliance activities and outcomes to all staff, not just management. Engage the entirety of the workforce.
- Keep up with pending or new regulatory activity and legal activity and get “ahead” of the curve. Organizations that only respond to laws already passed and cases already decided tend to get caught trying to “react” rather than remain vigilant and prepared. Rarely do new compliance requirements and legal requirements come instantaneously on the radar screen – they have been there for a while. Providers that see and understand the trends can use the virtue of time to integrate new systems into existing systems, teach new knowledge requirements, and build new organizational capacity to manage effectively, the new requirements.
As the Home Health and Hospice World Turns: Part I
Sorry for borrowing (piece of) a soap opera title for this post but it is rather appropriate given the news that occurred over the past 30 days. Just this past week, I’ve been interviewed by two business newspapers and on the phone with an investment banking firm I consult with from time to time regarding Amedysis, Gentiva and Odyssey’s merger, the pending impacts of the PPACA on the home health and hospice industry, mergers in the industry in general and using a “catch-all”, what the “heck” is going on in the home health and hospice sectors. With a chance to recoup over the long 4th of July weekend (and organize my notes from last week’s conversations), a post on what all the conversations were about seemed appropriate.
Amedysis: A month ago, on my company’s E-News site (http://apexhealthcareconsultants.info), I edited an article regarding the Senate Finance Committee’s inquiry into the Medicare billing practices of a handful of very large home health agencies (Amedysis, Gentiva, LHC Group etc.). The inquiry is a result of an article that appeared earlier in the year in the Wall Street Journal, focused quite intently on Amedysis’ billing practices; principally as applicable to therapy visits. The fall-out since the Wall Street Journal article and the Senate Finance Committee article is two-fold. First, the class action suit (I’ll touch on it in a bit) and the hefty drop in Amedysis stock price.
In brief, the class-action suits (there are three) focus primarily on the perspective of shareholders (the “class”) and alleges that the questionable Medicare billing practices (none of which at this point, CMS or the OIG has taken specific issue with) served to artificially increase the share price of Amedysis stock. The allegation of abuse of the Medicare system, prior to any action taken by the federal regulatory system in the form of a fraudulent billing investigation or claims investigation, is a bit different in-so-much that it essentially accuses the company of manipulating its earnings as opposed to causing harm to any patients or group (class) of patients. The “harm” for shareholders is the drop in price that would/did occur as a result of the alleged fraudulent billing practices. To add a twist, the suits also allege Sarbanes-Oxley violations which require the corporate officers of publicly traded companies to abide by a code of ethics. Amedysis settled an allegation of fraudulent Medicare billing practices in 2003 (for Medicare activity between 1994 and 1999) and as part of the settlement, expanded its corporate compliance activity/program. Additionally, since 2003, Amedysis has had notable turnover of the key financial executives (CFOs primarily) with active rumor-mill chatter focusing on the cause related to overly-aggressive Medicare billing practices. Medicare represents 87% of Amedysis annual revenues, by far the largest percentage for any home health provider in the industry.
As Paul Harvey (famous radio newsman now deceased) was famous for; “Now, for the rest of the story”. There are a number of different and integral factors in play that are unique to Amedysis but also, symptoms of an industry, a payment system and a flawed health care reform law.
- The issues regarding possible Medicare over-billing or at least, aggressive billing are not new for Amedysis. Their growth has been remarkable and unique for an agency so fully immersed in a government revenue stream. What is unique at this point in time is that the Senate Finance Committee inquiry, Wall Street Journal article and now the class-action suits come in advance of any customary federal regulatory actions. I do suspect that CMS and the OIG will enter the fray in the near future.
- Medpac has reported to Congress repeatedly that the Medicare payments to home health agencies were “lavish”, producing double digit profit margins on average, for most Medicare home health encounters. The PPACA (reform law) effectively cut Medicare payments to home health agencies and increased the documentation requirements for agencies to justify the necessity of continued visits.
- The feds have aggressively stepped-up their search via Recovery Audits and targeted billing inquiries for Medicare over-payments or more appropriate, Medicare fraud activity. This activity is two years old and growing each year with additional force. The writing is/was “on the wall”.
- To fully understand “what” is at the core of the Amedysis issue is to understand the age-old economic axiom that states, “what gets paid for (rewarded) gets done”. Medicare provided a utilization incentive tied to a certain number of therapy visits ($2,200 for 10 visits). Agencies thus targeted patients and developed care practices that maximized the opportunity to garner the incentive payments. In a typical government move, CMS rescinded the incentive payment as it became obvious that agencies were “gobbling-up” the requisite visits and conforming patients to achieve the incentive. A more meager incentive of a few hundred dollars is now provided at six visits, fourteen visits and twenty visits. Oddly enough, companies today seem to provide far more “six visit” encounters than twenty visit encounters (profitability vs. cost for twenty visits as well as a likely evident decline in medical necessity by the twentieth visit). Amedysis of course, is not alone in seeking to tie care provided to reimbursement nor is the home health industry alone in gaming the Medicare reimbursement system for additional dollars. For-profit hospitals, nursing homes and hospice agencies (and non-profits) alike are skilled at “Medicare maximization”, effectively matching what Medicare will pay with certain types of referrals, matched against the costs incurred to care for certain types of patients. This game goes on year-in and year-out with CMS constantly tweaking PPS categories to incent providers to take certain patient types (payment was too low) and to reduce the profitability of other patient types. In short, what gets paid for gets done.
- The PPACA did nothing to reform the system and arguably, it made it worse by attempting to extract funds via reimbursement cuts from Medicare. Of course, it is unlikely these cuts will be fully made or sustained as Congress has never shown the political will required to cut provider payments. By not truly reforming how Medicare reimburses providers for care, the PPACA only served to layer on huge amounts of bureaucracy to an already antiquated reimbursement system. In the end, nothing changed in terms of how Part A and Part B of Medicare pays providers; only the amounts “theoretically” changed. As a system, Medicare pays more for more care and higher acuity care. Providers will naturally gravitate their referral gathering efforts and marshall their care delivery systems toward the patient encounters that create the most “spread” (cost vs. payment). As the overall universe of these “profitable” patients is somewhat fixed, the provider universe is forced to unnaturally stretch the definitional boundaries of patient types (upcoding in plain health care vernacular). In other words, there are not enough truly “organically” existing patients that fit the best (most profitable) reimbursement categories but there enough that are perhaps, at the fringes. Add the fringe patients with a bit of creative tweaking via assessment and documentation to those that organically exist (fit the exact patient type) and presto, sufficient current volume for all providers. The difficulty for regulators and others who would charge that the fringe patients are not truly members of the organic group (those whose care requirements exactly match a certain reimbursement category or categories) is “proof”. The provider and medical communities are far better versed in assessment techniques and documentation requirements and as such, little can be done to reign in this reimbursement “three-card Monty” game. Until the reimbursement is reformed to reward better, more appropriate and efficient care versus “more” care, the over-reimbursement problem will remain, as it has for decades dating back to when providers ballooned certain costs to receive higher per diem rates from Medicare (under the cost-based reimbursement system).
What comes next in this paradigmatic shift in the home health world is merger/consolidation. As the profitability of one element of Medicare business shifts, larger agencies will acquire smaller to medium-sized agencies in order to increase market-share, lever infrastructure, and to supplement lost incremental margins with volume. Simply put, if the relative margin for one type of encounter shrinks, recouping that lost margin (or at the least the majority of it) becomes a function of incurring more encounters with smaller margins. As long as the incremental costs of additional capacity to handle greater volume remains in a ratio, lower than the net revenue received from the greater number of “less profitable” encounters, it is possible to generate a similar level of organization-wide, net operating income. The fastest and arguably most efficient way to create incrementally more encounters is to acquire someone else’s encounters at a price-point that is sufficiently low enough to create virtually (virtually to mean within a short time-frame) instant margin via the increased volume/market-share.
In effect, smaller agencies with less volume to spread the reimbursement loss/risk become attractive targets in this environment. A smaller agency’s value drops as its revenue/margins shrink and with limited geographic presence and referral markets to spread the lost revenue risk across, the entity price declines. The decline in entity price is attractive for a large acquirer seeking solely market share and/or incremental volume. In short, the acquirer is capable of paying less for the economic value of the entity (it has declined or will declined) which it really doesn’t want, save the referral market or incremental patient volume which it desires. The value is purely found in the market share or referral base, not in the economic metrics or financial value of the entity. For a larger provider, acquiring smaller agencies within areas that the larger provider presently doesn’t serve or undeserves is the goal. The “merger” is almost protectionist; protecting profit margins or revenue streams that are shrinking by increasing volume and thus (hopefully), more overall revenue, equalizing the lost revenue once gained per encounter during periods of higher reimbursement.
In the next post, Part II, I’ll review what is going on in the hospice industry and why the Gentiva/Odyssey transaction is significant in terms of a harbinger of activity yet to come.
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