Current Policy Trends to Watch
In response to a recent series of questions from multiple segments of the health care and post-acute industry plus my own experiences within the landscape of providers and policy makers, I’ve summarized a current list of policy trends “pay attention to”.
Medicare Cuts and the Super Committee: Nothing seems to loom larger or cast a bigger shadow than the prospect of outlay reductions from Medicare translating into rate cuts for providers. Here is the core everyone should focus on. First, the recurring “Doc Fix” issue that Congress has repeatedly kicked down the road time and time again. Let the current patch dissolve and voila, a big chunk of spending disappears (a 30% rate cut on January 1) - albeit with enormous likely consequences in terms of patient access, service reductions, etc. Fix the problem permanently or more likely substantially, and additional non-budgeted spending occurs – a problem. Presently “on the table” so to speak is a recommendation from MedPac to fix the problem via repeal of the Sustainable Growth Rate formula (the trigger for the current “cut” scenario) and replace the formula with a schedule of Physician Fee Schedule updates over a ten-year period. The updates would target primary care physicians at the expense of specialists who would experience a 5.9% cut across a three-year period, followed by a fee schedule freeze. Altogether, this is a fix but one that comes with new spending if no additional changes are made. Likewise, the probability of this being a workable compromise within the medical community is minimal. There remains a side problem to this whole mess and it relates to the number of other Med B services tied to the SGR such as outpatient therapies.
Back to the Super Committee and the prospect of triggered automatic cuts to Medicare. The Committee is charged via last summer’s debt ceiling deal, to arrive at a deficit reduction of $1.5 trillion to be implemented over 10 years, sourced either through spending cuts, new revenues or a combination of the two. Based on what we know today and have consistently experienced over the past year or better, Congress lacks the political will and capability to achieve a consensus on just about any subject. Given that we are also hip-deep in a political cycle with elections nearly one-year away, compromise on a plan is less and less likely. If such a plan cannot pass or isn’t available by the deadline, current law requires an automatic cut of $1.2 trillion to occur, balanced across domestic and military spending. Within the triggered cuts in domestic spending is a 2% cut to Medicare provider reimbursement. This cut would be automatically on-top of, any other current reductions or cuts to providers that occurred as a result of CMS normal-cycle rule making. For example, the 2% would be added to the 11% outlay reduction for SNFs. Interesting to note, Medicaid is unaffected by the automatic reduction trigger. Boiling this all down, here is what is likely “on the table” and could conceivably play out.
- Medicaid is likely at greater risk for some kind of spending reduction package as Medicare and Social Security have the greatest political protection. My best guess, not that this will actually occur or pass, is direct discussions with regard to block grants as an expenditure reduction, broader waivers to States to eliminate current pressure for additional federal support, slow-down of health care reform Medicaid expansion to avoid the additional up-front federal support/funding required by current law.
- Some levels of additional programmatic delays or even, defunding of the Health Care Reform act. Congress loves to think of “not funding” a future expenditure as a “cut”.
- A Medicare realignment approach will be strongly considered. Under realignment, the Commission could conceivably adopt an approach similar to pieces advocated by Paul Ryan namely, higher retirement/eligibility age, premium support for privatization of health coverage (vouchers) or even some level of excess benefit taxation on wealthier retirees (in effect, an imputation of a premium cost for certain income levels). This approach is bolder than other less invasive options.
Medicaid: Notwithstanding my comments on Medicaid in the section above on Medicare and the Super Committee, states continue to wrestle with Medicaid deficits and the real prospects of flat or possibly shrinking, federal funding support. For most states, Medicaid represents the second largest expenditure item within their budgets, just behind education spending. Federal support levels average in the 50% to 60% range. Additionally, the majority of states continue to operate on a fee-for-service platform, bearing all of the direct program and care service cost plus the administrative burden. In a flat to down economic cycle, demand for Medicaid services rises for states as eligibility rolls swell with rising levels of unemployment. At the same time, down to flat economic periods reduce state income collected via taxation; the principal source of initial, core funding for Medicaid (the FMAP provisions require states to allocate first-dollar, the source of which is predominantly taxes). The three trends to watch with Medicaid, all of which I am seeing occur regularly, are;
- A push toward privatization and managed care. States are looking at ways to better coordinate services, create some competitive bidding models, and reduce administrative burdens. Managed Medicaid programs have proven succesful in achieving these goals (some more than others).
- Increasing numbers of programmatic waiver requests to the Federal government. A major issue with the enhanced FMAP funding that came via the Stimulus Bill is that the funds came with strings attached, primarily a requirement that the enhanced funding be used for eligibility expansion, program expansion, and expanded benefits. In July of this year, the enhanced funding disappeared leaving many states with an equal or greater structural Medicaid deficit and still lacking a sufficient economic recovery to garner the necessary “state grown” revenue to sustain not just former program levels but program and benefit expansion driven by the enhanced FMAP. States are increasingly looking to the Federal government today for relief or “waivers” that undo what was put in place to garner the enhanced FMAP.
- Increased provider taxes and decreased payment levels are a given for the vast majority of states. I haven’t yet encountered a state Medicaid plan that wasn’t considering or already implementing, some form of provider tax increases and/or reduced payments to providers. Of most reductions, the target appears squarely focused on the HCBS (Home and Community-Based Services) segment, inclusive of Medicaid waiver programs for Assisted Living and Congregate Housing (Medicaid payments made for supportive, assisted care to a population at-risk of institutionalization).
Miscellaneous/Other: This is a catch-all of five separates trends or issues that in some ways, are inter-related to the Medicare and Medicaid sections and in some ways, separate. To be sure, I could have expanded this section by a magnitude of ten and still not touched on every policy issue presently at play. I opted for the five I hear discussed routinely or I encounter frequently in my work.
- Accountable Care Organizations (ACOs): The first release of draft rules from CMS in March of this year produced a non-starter response from providers. The initial draft implied a series of cumbersome and poorly defined steps for creation, sustainment, operating and quality measures (65 quality measures required for bonus payments) that chilled providers. Earlier this year when the draft was released, I wrote an analysis piece on the draft and the implications for post-acute providers ( http://wp.me/ptUlY-8H ). Clearly, my analysis paralleled the reactions that CMS received regarding the proposed rules. Just this week, CMS released a revised ACO set of rules and to a fairly large degree, softened and clarified the objectionable elements contained in the March draft. Summarized, here are the major changes. Time will tell whether these changes spur additional interest in ACO development.
- Reduction in quality measures from 65 to 33.
- Providers are not required to share in the down-side risk and will be able to access earlier, elements of revenue sharing. The initial version required all original savings returned to Medicare prior to any revenue sharing.
- Community Health Centers and Rural Clinics will be permitted within the ACO model – originally excluded.
- Providers will know up-front which patients are likely to be included within the ACO - originally, not known until after the ACO was formed – a removal or limitation on unknown adverse selection/population risk.
- Inclusion of an Advanced Payment Provision for smaller ACOs, creating initial streams of payment or capital that allows infrastructure investments needed to formulate an ACO to effectively be funded by CMS. this provision only applies to non-institutional ACOs (physician practices) of $50 million or less or rural based ACOs with Critical Access Hospitals or low Medicare volume rural hospitals.
- Removal of the mandatory anti-trust review procedure for new ACOs by the Department of Justice and the Federal Trade Commission. This was a significant gray-area issue in the March draft.
- CMS Movement to Split Provider Pharmacies from Consulting Pharmacy Duties: In an effort to combat what it believes is a conflict of interest between quality and quantity in the SNF pharmacy delivery/provision process, CMS is proposing a requirement that would prohibit the dispensing pharmacy from also being the consulting pharmacy in the SNF. In short, one entity would be required to dispense the medication and the SNF would need to contract or employ, a separate consulting pharmacist or group to review and establish, clinical pharmaceutical plans of care. CMS assumes that this change will reduce the overall number of medications provided and improve care delivery. Perhaps but unlikely. The true outcome is likely about the same level of prescription use in SNFs and higher costs for the SNF. Consulting pharmacists and pharmacists in general are in short supply. For most SNFs, finding a consulting pharmacist separate from the providing organization will be difficult and expensive. Even more problematic will be finding an independent consulting pharmacist or group with sufficient long-term care and geriatric experience to be of any benefit at all; for residents and the facility. My take here is that CMS is wary of continued consolidation of institutional pharmacy providers such as Omnicare and PharMerica and is seeking a back-door method for constraining their growth across the post-acute spectrum.
- Doc-Fix and Sustainable Growth Formula: I touched on this earlier but there is a real side issue to watch and it has nothing to do with the payment issue to physicians. The SGR and the physician payment formula also encapsulates a whole host of outpatient services tied to this element of Part B. For post-acute providers, the target to watch is outpatient or Part B therapy rules and payments. As goes the SGR debate, so goes the prospects for payments for other Part B services such as therapies. Frankly, any fix to the SGR and physician fee schedule issues needs to occur separate from the other Part B elements presently included within the SGR mess.
- Home and Community Based Services: What once was a flourishing sub-industry is soon to be no longer. I touched on this briefly in the section on Medicaid. This element is at significant risk for post-acute providers as funding is tight and most states are looking at any opportunity possible to reduce their HCBS programs, reign in eligibility growth or receive waivers from the Feds for wholesale discontinuation of certain programs. The reason? Institutional care and medical care cannot by law be cut whereas these programs are waiver programs; not presently, expressly required by Federal law.
- Tighter Regulatory Scrutiny: Somewhat parallel to the pharmacy issue above, CMS is foretelling a renewed vigilance on certain post-acute practices and relationships. I am reading and hearing all too many comments and stories regarding CMS closely watching and even planning to directly interject via probes and audits ( and perhaps rule-making), relationships between SNFs and contract therapy companies, pharmacies (see above) and SNFs, SNFs and Hospices, and ancillary medical equipment providers (wound vacs, specialized mattresses, fall prevention devices, etc) and SNFs. The tone here is that CMS believes these relationships exist to optimize profit for the parties and to capture larger elements of reimbursement, not to improve care outcomes or efficiencies.
- Increasing Demands on Physician Engagement: For most post-acute providers, physician engagement such that the same was tied directly to reimbursement was never a major issue. This trend unfortunately, is here to stay and will increase. CMS believes that in Hospice and Home Health particularly, unneccessary services were provided without established medical necessity or justification. Both home health and hospice now have face-to-face requirements for physician certification of necessity for services/care. The next phase of this, and I guarantee this will happen in the next year or two, is direct engagement and oversight of CMS in the relationships between physicians and the organizations and the content of the documentation of medical necessity or justification. Providers need to be vigilant here or face claim denials in increasing numbers.
SNFs: What to do Now for October 1
As known by now, a lot of change is occurring with Medicare effective 10/1. Daily, I field questions from around the country regarding what exactly is happening and what if anything an SNF should do to “minimize” the impact. To a certain extent, at least as far as reimbursement reductions go, it is difficult and ill-advised to adjust too hastily or rapidly. Longer-term planning is required to fundamentally, re-balance a payer mix. This said however, all SNFs should be looking at their business models realizing that the long-term rate outlook on Medicare is best case flat, most probable declining.
Below I’ve accumulated and summarized, my top five recommendations/answers to the most common “what do we do next” questions. For reality purposes, I assume (as it will happen) that rate reductions as called-for in the CMS final PPS rule will occur. I understand that Congress may choose to intercede but given my sense of the current political climate and the economic issues at hand, I think it ill-conceived not to assume reduction and bet on “lobbying” to reinvent higher rates.
- Begin Balancing Your Payer Mix: Out of all of the SNFs I have analyzed recently, those that have a truly balanced payer mix with appropriate revenue sources will fare well to fairly well, even with the pending Medicare cuts. Balanced looks different to different SNFs but in reality, they all share common traits. First, Medicare isn’t their sole source of margin. Second, their Medicare case-mix is well mixed with rehab and clinical qualifiers, perhaps a shade more clinically complex than rehab only. Third, they have strong overall clinical competencies and thus, attract patients with other payer sources such as private insurance. Finally, Medicaid is equal to or less than a third (no more) of their payer mix. To balance an SNF payer mix, the facility/organization must undertake a strategy to define service/product mix, add clinical competency, build referral sources for different patients, and improve overall operating efficiencies aligning staffing and service delivery with effective care outcomes. This strategy is not about optimizing Medicare reimbursement (though it does that), it’s about building a care engine that performs across payer sources.
- Develop a Solid Understanding of Medicare Reimbursement: Many providers I talk with have only a rudimentary understanding of the current PPS system and most of what they have learned comes from the wrong sources; sources that are partial to a particular bent or issue. Even with the cuts, providers who understand how to take advantage of caring for a more clinically complex patient profile and get reimbursed for their work, aren’t horribly at-risk for major revenue swings. They have developed internal core competency in coding, in managing the length of stay, and in capturing the true care needs of the patient. They bring in the necessary training resources and have staff resources that help maximize their productivity and care delivery. They know how the system works, don’t try to deny the changes, and develop the systems and the people necessary to be current, use the MDS effectively and capture the dollars in the form of reimbursement, correctly.
- Analyze the Impact: If reimbursement cuts are forthcoming, and they are, I hear too many vague generalities about how much and “the sky is falling” rhetoric. Frankly, most providers I talk with haven’t modeled the financial impact as of yet and as the old adage goes, “you can’t begin to fix what you don’t know is broken”. In some cases, simple tweaks to operations can improve the actual impact. In other cases, changes to internal delivery systems, coding, etc. can improve the revenue impact (positively). Suffice to say, knowing what the impact is today can help a provider hone in on what options are available to mitigate the “pending” damage.
- Understand the Totality of What is Changing: It is easy to reflect solely on one element of the Medicare equation that is changing in October; revenue or reimbursement. The problem most providers also face is that certain systemic changes are occurring such as the allocation of treatment time for group therapy, the requirements for End of Therapy OMRAs and the Assessment Reference Date windows. As October 1 is 30 days away, providers should have already gotten up-to-speed on these changes and begun implementing policy, procedure and systemic internal changes to address the new requirements. As change requires education, adjustment, audits and then additional education and/or adjustments, starting too late equates to getting claims wrong. Ask any provider that has gone through a probe or had claims rejected what that revenue impact is; far worse and impactful than a rate cut.
- Focus on Therapy: When I encounter SNFs with major Medicare issues, I see three common problematic themes. First, for facilities that use outside therapy or contract therapy providers, the facility has “washed” their hands of the Medicare therapy issues. This is a problem on so many levels. As I have written before, the therapy company is not the provider, the SNF is. Under Part A, the SNF is always the provider and as a result, any problems caused by incorrect billing, improper care, improper coding, etc., perpetuated by a contractor is a problem for the Part A provider. Basically, the liability cannot be ceded to a contractor. The SNF must know as much about the provision of therapy under Part A as it does the provision of nursing care or any other discipline. And most important, while therapy companies claim that they develop partnerships with SNFs, the reality is far from a true partnership. For a partnership to actually occur, the risks and benefits must be equally shared. Such is not the case in these relationships. In this relationship, each (the SNF and the therapy company) have different business and profit motivations such that at times, the interests may compete in ways deleterious to the SNF, left unabated. Second, if a provider has its own program and staff, the therapy component is rarely fully integrated with all other care disciplines. In short, all too often therapy is looked at as purely a profit center rather than an integral part of the clinical care delivery an SNF provides. Therapy involvement, assessment, and integration into the total care plan of all residents/patients prevents problems in terms of care outcomes, helps capture additional revenue via reimbursement, and improves the overall clinical competency of the care team. Third, all too many administrators have no idea the role therapy provides in their Medicare or general care delivery. Suffice to say that if an Administrator wants higher per diems, better care outcomes, better compliance results, its time to learn the overall MDS and understand where therapy integrates in Medicare, how this system works (not just the revenue generated) and how therapy can improve the overall operating performance of an SNF (revenue and expense).
Before I conclude, I have three remaining suggestions to issues that I commonly address in the SNF world. These suggestions are pertinent at all times for an SNF that is seeking to improve its operations, regardless of the reimbursement issues that are “at-play”.
- Develop Centers of Excellence: Trying to be all things to all patient types, etc. in an industry segment as wide as the SNF arena is a recipe for failure or at best, average to below average results (operating and other). Not every SNF will excel in a post-acute, transitional care environment. Markets are different, referral source needs are different, etc. By developing an acute awareness of market needs, referral source needs, etc., an SNF can focus-in and develop, centers or “lines’ of care excellence. Three things happen or should with this approach. First, occupancy issues are less prevalent. The SNF knows its flow of patients and can set aside the right amount of capacity for the length of stay and volume requirements dictated by a group of patients. Second, efficiency in terms of staffing, supplies, programs, care plans, etc. can truly be developed. Third, building a true revenue model is far easier. A revenue model is driven by an expectation of certain occupancy, revenue streams from each patient type, and pricing/reimbursement models that accentuate revenue. Expenses can then be matched accordingly.
- Suppress and Evaporate “Stupid Money”: Stupid money is dollars that are spent on things that can be controlled by an SNF or any business. It saps resources and margin. Common locations of stupid money are Worker’s Comp, agency use, over-time, supply waste, improper coding, fines, forfeitures, billing errors, staff turnover, and compliance/legal issues. Minimizing the dollar flow and/or eliminating it for “stupid money” immediately improves the bottom-line. I don’t know how many dollars over the years I have seen across all of the facilities I have been in that get wasted repeatedly, on stupid money issues.
- Develop Care Systems/Algorithms: SNFs that really excel financially and from a care/outcome perspective, have gotten very good at developing common protocols and algorithms for common admission diagnoses. They have become efficient and effective at delivering high quality, lower cost care by reducing the variances and treatment fluctuations that arise when care is unplanned or uncoordinated. They have developed formularies, treatment protocols, and outcome-based algorithms for the most common types of admissions and issues faced by patients within their settings. Some have gone as far as to coordinate this work within their upstream and downstream referral networks (home health on discharge, hospital on admission/re-admission). These SNFs make solid, repeat margins, have balanced payer mixes and are positioned appropriately for the next foray into healthcare reform; namely bundled payments, competitive bidding, ACOs and quality-based incentive payments.
Post-Acute Outlook Post Debt Ceiling, Post Medicare Rate Adjustments, Etc.
OK, the title is a bit wordy and trust me, I could have included more “posts” but I think I got the point across. First, I’ll admit to having a crystal ball however, the picture I see is a bit like the first (and only) television set I remember having as a kid: Not in color, lines running vertically and horizontally, snow, and an antenna that required frequent manipulation and tin foil to get any kind of reception. And of course, there were only three channels available. The same today is true about my crystal ball on health policy and what to expect in the post-acute industry.
My crystal ball’s three channels are Medicare, Medicaid and the Economy. Reviewing each, here’s the programming I see for the fall lineup or if you prefer, the period post October 1 (fiscal year 2012) through early next year.
The Economy: The debt ceiling discussion and the actions taken by S&P and the Fed in the last couple of weeks are a reminder via a cold slap, of how mired in dysfunction Washington remains and how moribund the economy truly is. While technically not in a recession, the economy is not really growing either; a growth rate of less than 2% in GDP is like treading water. For unemployment to change, consumers to return and capital to re-enter the business investment side, GDP growth needs to be above 2% and ideally north of 4% for a sustained period. Unfortunately, in order for this to occur, fiscal policy in Washington needs to develop some semblance of coherency and consistency.
What I know from my economics training and background and my last twenty-five years plus in the healthcare industry boils down to some fairly simple concepts. These concepts are I believe, a solid framework for providers to use in terms of planning for the near future and even somewhat beyond.
- The U.S. debt level is fueled to a great degree by entitlement spending, less so by discretionary spending. If the prevailing wind is about debt reduction and balance in the federal budget (or getting closer to balance), two things must occur. First, spending constraint where spending primarily occurs, namely entitlements. Second, revenue increases in some fashion, namely taxes. The devil as we know it today, is how and where on both sides of the ledger (revenue and expenses). Spending reductions alone are insufficient, unless dramatic, to significantly lower the debt level or balance the budget; particularly in a period of near zero economic growth. Dramatic spending reductions are clearly unwise and potentially, deleterious to an industry sector (healthcare) that continues to provide steady employment. Similarly, for spending reductions on entitlements to truly have a positive impact and make sense, program reform must be at the forefront of “why” less spending is needed or warranted. Program reform, ala the health care reform bill which didn’t really reform Medicare or Medicaid but added new layers of entitlements, is far from the answer. For providers, there is no immediate or for that matter, longer-range future that doesn’t entail less spending on Medicare or Medicaid. As the only “trick” in Washington’s bag or the bags contained in the statehouses is rate cuts, anticipate and plan for the same.
- A lackluster, no growth economy with high unemployment levels fuels provider competition wars over paying patients. As fewer paying patients are available and/or fewer “good” paying patients are available, providers will compete for the same market share within and across the industry levels. What this means is that providers will seek to acquire market share within industry segments (home health, hospice, SNF, etc.) and across industry levels (hospitals seeking to maintain patient days versus referring to post-acute providers). The end result is more or similar levels of M&A activity, if capital remains available, and thus, consolidation that is driven primarily by market share motives.
- According to a recent healthcare expenditure outlook released by CMS, healthcare spending is projected to reach $4.6 trillion by the end of the decade, representing nearly 20% of GDP. The primary contributor to this projected level of growth is the Affordable Care Act, principally due to the expansion of Medicaid and the requirements for private insurance coverage (Medicaid growth of 20.3%). While CMS notes that Medicare spending may slow somewhat, this assumption is predicated upon the continuation of spending cuts and a 29.4% reduction in physician payment rates required under the current Sustainable Growth Rate (SGR) formula. Assuming, as has historically occurred, Congress evacuates the cuts called for under the SGR and as has been discussed, moves to a formula tying payment to the Medicare Economic Index, Medicare spending accelerates to a 6.6% growth rate (1.7% projected for 2012 with continuation of the SGR). Summarized, health spending is the two ton gorilla in the room and it will continue to have a heavy, significant influence on economic policy discussions at the federal level and beyond. Though I don’t agree with the recent rating action taken by S&P, it is impossible to ignore the consensus opinions of allof the rating agencies: Entitlement spending, namely driven by healthcare spending, is unsustainable at its present level with the present level of income support (taxation) and as long as the status quo remains fundamentally unchanged, the U.S. economy is not fundamentally stable.
- Current economic realities and the rating agencies actions and statements foreshadow a stormy, near term future for the healthcare industry. As is always the case, there will be winners and losers or more on-point, those more directly impacted and those less so. On the post-acute side, excluding reimbursement impacts, I’ve summarized my views on what I see in terms of economic impacts for the near term (below).
- The credit rating side will remain pessimistic for most of the industry “brick and mortar” providers. Moody’s, Fitch, et.al. will continue to have negative outlooks on CCRCs, SNFs, etc. primarily due to the economic realities of the housing market, investment markets, and reimbursement outlook. Within this group of brick and mortar providers, Assisted Living Facilities will fair the best as they are the least impacted by the housing market and for all intents and purposes, minimally impacted by reimbursement issues (save the providers that choose to play in the HCBS/Medicaid-waiver arena).
- The publicly traded companies (primarily SNFs but home health and LTACHs as well) will continue to see stock price suppression due to the unfavorable outlooks and credit downgrades provided by the rating agencies. This will occur regardless of the favorable earnings posted by some of the companies. Reimbursement trends (down) are the primary driver combined with the hard reality that Medicaid is in serious financial trouble, even more so going forward as enrollment jumps due to continued healthcare reform phase-in schedules.
- Capital market access will continue to be tight to inaccessible for some providers. Reimbursement, negative rating agency outlooks, lending/banking reform, above historic levels of failures/bankruptcies, etc. all continue and will remain as an overhang to the lending environment. Problems with potential continued stable to increasing funding levels at Fannie, HUD, etc. create additional credit negativity and tighter funding flow. Capital access, when available, will continue to have a credit premium attached, in-spite of low base rates. I expect to see continued development and demand for private equity participation.
- Given the above, financially driven mergers and acquisitions will remain somewhat higher as organizations seek to use the M&A arena to create financially stable partnerships and bigger or larger platforms from which to derive credit/capital access.
Medicare: The problems with Medicare are too deep and lengthy to rehash here and thus, I’ll move to brevity. Medicare is, as I have written before, horribly inefficient, bureaucratic, and inadequately funded to remain or be, viable. As a result, only two real scenarios exist today: Cut outlays or increase revenues. Arguably, a third that involves portions of each scenario is the most probable solution. Real reform is light-years away as the current and forseeable political future foretells no scenario that includes a Ryanesque option (Paul Ryan plan from the Republican Congressional Budget and/or Roadmap for America). Viewed in this light, the Medicare outlook for post-acute providers is as follows.
- For SNFs and Home Health Agencies, reimbursement levels are on the decline. The OIG for CMS and MedPac have each weighed-in that providers are being overpaid. Profit margins as a result of Medicare payments or attributable to Medicare, are deemed too high (mid to upper teens) and as such, the prevailing wind is payment or outlay reductions. The bright-side if such exists, and as I have written before, this “cutting” trend will impact some providers far more than others. The providers that have relied heavily and primarily on certain patient types for reimbursement gains will be more negatively impacted than providers with a more “balanced” book – a more diverse clinical case mix. The movement is toward a more balanced level and thus lower level, of reimbursement theoretically closer aligned with the actual clinical care needs of patients. Providers with more diverse revenue streams and more overall case-mix balance will not be as adversely impacted although, the Medicare revenue stream will be lower or less profitable.
- Hospice has remained relatively unharmed, principally due to its lower overall outlay from the program. It remains a less-costly level of care than other institutional alternatives. A note of caution here is important. While rates have not been cut, program reform is occurring on the fringes and I suspect a wholesale re-design of the Medicare Hospice benefit is forthcoming. In such a fashion, payment reform rather than rate reform or reduction will occur. The obvious trend is to restructure payments away from a reward for lengthier stays and to require more precise determinations of terminality, tied to a tighter or imminent expectation of death. OIG and MedPac have issued a number of papers and memos regarding the relationships between Hospice and SNFs that correlate to longer stays for certain diagnoses. Summarized, payment reductions via rate are less of an issue but utilization reform is forthcoming via additional regulation designed to reduce overall payments to Hospices or as CMS would say, to more closely align payments to the real necessity of care for qualified, terminally ill patients. Without question, the largest impact (negative) going forward will be on hospices that have sizable revenue flows tied to nursing home patients.
- LTACHs are in a similar reimbursement boat as hospice; small overall outlay within the program and for the past few years, minimal expenditure growth. The industry is from a cost perspective, fundamentally flat. What will be interesting to watch is whether under certain aspects of healthcare reform, this niche’ takes on a growth spurt. Bundled payments, ACOs (Accountable Care Organizations), and shifts in SNF reimbursement away from higher acuity, rehab patients may lead toward more utilization of the LTACH product. This being said, the prevailing Medicare reimbursement profile is fundamentally flat. Given a bit more creativity on the part of the LTACH provider community, this segment may be poised for some growth, although not directly via increasing payments.
- The most uncertainty lies on the Part B provider side, particularly providers that are reimbursement “connected” to the Physician Fee Schedule (therapy for example). As of today, the required change to the fee schedule as a result of the Sustainable Growth Rate formula is a fee cut of 29.4%. It is quite possible, due to the current negative or flat growth trajectory of the economy, and sans any change in the law, for fees to be cut again in 2013, barring Congressional action. Most acutely impacted in this scenario are physicians and predominantly, primary care physicians. I have yet to see a Congress that fails to intercede and repair cuts this draconian but the political times and the budget deficit debates are markedly different than during any prior period. Critical to whether this cut or some level less than this is implemented is the issue of access, already a hot topic for physicians. Physicians, particularly primary care specialists, are already in short-supply nationally, woefully short in certain markets. If cuts of this magnitude or perhaps any magnitude roll forward, I suspect many physicians will curtail or close their practice to new Medicare patients. On the other side represented by non-physician providers, Part B cuts of this magnitude will no doubt limit service and access. Fixing the formula and the law has been difficult for Congress as the dollar implications are substantial. I foresee another round of patches, etc., occurring close to the “cut” date, especially since 2012 is an election year.
Medicaid: For as many reasons as Medicare is a mess, Medicaid is as well, though magnified by a factor of two or more. Medicaid’s biggest problem now is rapid growing enrollment, primarily due to high unemployment and upcoming federal eligibility changes mandated via the Accountable Care Act (healthcare reform). Given Medicaid’s current funding structure, this issue poses huge problems in flat to negative growth economies. States simply due not have the revenue to create a higher matching threshold or level, necessary to achieve more federal dollars. In July, the enhanced federal match provided via the Recovery Act (stimulus) sunsetted leaving states with huge structural deficits and the prospect of deficit growth due to increasing enrollment. In virtually every state, rate cuts have been discussed and in half-again as many, implemented. States continue to move to the federal government seeking relief from required or imputed service provision requirements and/or relief from eligibility requirements (waivers). The inherent difficulty with balancing Medicaid funding is that the same is directly tied to stable to growing state revenues and a clear picture of population risk or need. Changing (increasing) populations often present adverse-risk scenarios, creating higher than normative utilization. For obvious reasons, lower than market reimbursement levels, access is a big issue. Not all providers willingly and openly desire Medicaid patients and those that do are not on the increase. Without additional funding assistance at a level beyond what is called for in the Accountable Care Act, regulatory relief and an improving economy, the reimbursement prospects under Medicaid are all bleak.
- In the post-acute environment, the biggest impact of this continued ugly Medicaid scenario will fall directly on SNFs. Matching prospective or real Medicaid cuts with Medicare cuts forthcoming is a true “negative” Perfect Storm. For most SNFs, Medicaid is the largest payer source and until recent, Medicare was used as a make-up funding source for Medicaid reimbursement shortfalls. Adding fuel to an already smoldering fire, the suppressed earnings available to seniors, no growth in Social Security payments, and a stock market that presently produces only a flat return trajectory limits the pool of private paying and privately insured patients. In short, there is no additional room on the revenue side to make-up an SNFs Medicaid losses. For SNFs, only the few that have limited leverage, high occupancy, an extremely balanced payer mix, and stable staffing will weather the Medicaid near term future; a future of no rate increases or likely cuts.
- While not a huge segment of the post-acute environment, HCBs providers will feel the Medicaid pinch as well. As a result of needing to reign in Medicaid spending, states are rapidly curtailing their funding and payment levels for HCBs programs. While most states still claim that HCBs expansion would help soften their Medicaid deficit, states that bit a big bullet in this arena early on (California for one), now realize that waiver programs produce massive new levels of beneficiaries who want and need access to community support services. SNF access was already somewhat limited as the industry has truly shrunk but the demand for services in this growing eligibility pool has expanded. Funding these services is becoming a real problem for states and as such, support payments will remain flat, decline and program growth will be capped.
- Home Health will also feel a bite from declining Medicaid funding although its Medicaid utilization levels are modest at best. For Home Health, Medicare is the big dog and Medicaid a minor element. Staffing costs are on the rise for Home Health as the competition for home health aides in many markets is brutal or getting rough. Competition, even in a high unemployment environment, for certain categories of employees, raises wages and benefit costs. Staffing is the largest expense for a home health agency and as such, a scenario with rising employment costs and flat to declining reimbursement negatively impacts margins. I don’t see this scenario changing any time soon.
Concluding, this may be one of my most depressing posts, if for no other reason than the current external view is dreary and nothing foreshadows improving weather. For brick and mortar providers, capital access is critical, especially for SNFs who have as a profile, some of the oldest physical plants. SNFs are capital-intensive operations and without an ability to fluidly and reasonably, access modest cost funds, deferred maintenance (already high) will increase. With so much revenue tied to reimbursement and a reimbursement outlook that is negative, it is unlikely that capital will flood back to the post-acute industry. Critically important to the viability of this sector is an improving economy combined with regulatory reform that, if reimbursement remains flat, allows providers to become truly more efficient. In short, increased program revenues under Medicare and Medicaid due to economic growth, will ease a lot of the immediate crunch and perhaps, buy sufficient time for absolutely critical, health policy reform.
Accountable Care Organizations: A Post-Acute Perspective
Suffice to say, I am behind in getting this post “out”. My best intentions of a month or so ago were quickly dashed by other more pressing commitments. Nonetheless, I did read the proposed regulations as produced by the Department of Health and Human Services/CMS on April 7 and worked through a stack of research on the subject of Accountable Care Organizations; loosely coined by me, the Good, the Bad and the Ugly.
In the purest of definitions, easily lost within the DHHS/CMS proposed regulations, Accountable Care Organizations (ACO) are about improving patient care outcomes and satisfaction while reducing cost or expenditures for care. At the core of the premise about “why” and “how” an ACO would work in achieving better care, higher satisfaction and lower costs are three key assumptions or “truisms”.
- Best practices via algorithms and care pathways exist in sufficient supply, tested and proven, to reduce the variability that drives higher cost and lower satisfaction for a large and growing number of common patient care issues.
- Satisfaction is directly correlated to increased patient knowledge and communication, reduced bureaucracy at the provider level (fewer redundant steps) and better outcomes, more directly delivered and/or attained.
- Providers, properly incentivized to focus on outcomes and satisfaction will gravitate toward any and all steps and measures that improve outcomes and satisfaction and resultingly, deliver better and cheaper (less costly) care. The key is developing the right level of incentives that drive provider behavior in the desired direction.
For years, I’ve written and lectured repeatedly that bending the cost curve or lowering the overall costs of health care in the U.S. system must first begin at the core of the issue; the system of reward. A simple economic axiom defines this best; “what gets rewarded gets done”. Fundamentally, the U.S. health system has rewarded in the form of payment, procedures, pills, tests, and surgical (or surgical-like) interventions at the expense of prevention and wellness/care management. In spite of an enormous and growing body of evidence that much of the escalation of costs (steepening of the “curve”) in the U.S. is driven by chronic conditions poorly managed and lacking in early detection and prevention strategies, funding has remained skewed toward treatment practices that are technical and predominantly surgical or interventional in nature. The result is poor to minimal access for Type II diabetics (as an example) to integrated chronic care programs designed to stave-off emergency room visits, loss of limbs, peripheral vascular disease, loss of vision, etc. while access to the latest imaging technology, interventional cardiac programs and surgery ranges from good to stellar and even drastically redundant in some markets.
Knowing the above and understanding that a fluid and flourishing economy has been built around this system, the belief or premise that one can design and make work effectively, a paradigm shift such as is intended with ACOs is curious at best. Suffice to say that while I know such a premise makes sense (Accountable Care Organizations), I’m less than certain from my read of the proposed regulations and knowledge of the current system, how incentive realignment will work to first, bend the “cost” curve and second, create a necessary body of invested, at-risk stakeholders willing to place their economic futures (such that they are) in the hands of a governmental half-and-half, moving payment system. Moreover, the initial investment capital is clearly all provider capital placed at first dollar risk and the shared-savings return proposed, provides a poor return on the capital invested. This is particularly true for the post-acute elements critical in the formation of a truly functional ACO.
For an ACO at is primordial core to work (achieve the desired outcomes), hospital utilization and the most expensive clinical utilization must be diminished. Diminution of such care is achieved primarily, via three methods/interventions/actions.
- Primary care available and accessible enough to create consistent early detection and provide low-cost interventions that arrest a progressing disease-state prior to an acute event that ordinarily would cause hospitalization. In the case of Type II diabetics for example, education and monitoring of insulin levels and Ha1c to create optimal therapy and patient knowledge and disease management efficacy that delays and avoids, hospitalization and interventions on a crisis basis. By simply deferring and/or avoiding, undetected and untreated peripheral leg and foot ulcers, thousands upon thousands of days of hospitalizations for amputations and/or intravenous therapy for infections can be avoided – annually.
- Delivering care in lower-cost settings or alternative settings, non-hospital based, nets enormous savings. As payment today is skewed toward hospitalization and hospital-based care, patients disproportionately receive care, tests, procedures in hospital settings. A primary example of how skewed the system has been is the artificial and unnecessary three-day prior hospital stay qualifier in order to receive Medicare coverage in a nursing home. Equally as non-sensical are the present Part B outpatient therapy caps for any non-hospital based and provided therapy. I could literally list hundreds of payment and care provision inequities but my point is made.
- True integration and data sharing among providers must occur and each provider must bear an incremental reward benefit and/or downside risk. If providers cannot access data fluidly on a patient population and share best practices encompassing steerage to the most cost-effective, best-outcome sources for care without fear of system reprisal, holes and gaps to effective care delivery at the best price/cost will remain too plentiful.
Taking the above into account, two major obstacles still remain in terms of successful development of an ACO. The first is patients, now indoctrinated into a system where pills, brands, certain tests, and other non-proven care modalities are expected, nay demanded. Simultaneous, this same group is famous for varying elements of non-compliance born out of a belief (though untrue) that most anything has a “medical fix” component. All the best practices and lower-cost alternative settings can’t overcome patient behavior unless and until, patients are part of the risk-benefit system.
The second obstacle, touched on earlier, is the system of reward or the model of risk-benefit. The ACO core model is one of risk-sharing; gains in the form of varying levels of saving returned to the providers willing to bear “risk” in the form of higher than desired utilization, costs, etc., or outcomes including satisfaction that are below certain pre-determined and desirable levels. The inherent fallacy within this concept is multifaceted to say the least.
- As indicated, patients are a true wild-card; both in terms of behavior and health status. As the patient remains effectively detached from the risk-benefit equation, behavior is left to chance. Additionally, health status going into the population on behalf of patients is effectively unknown. In short, a “ticking coronary time-bomb” may be present (or similarly present) creating a cost and outcome explosion that defeats the opportunity of an ACO to truly deliver effective savings. The inability in the present regulations to set a path for securitizing against this risk and for truly integrating patients into the risk-reward equation (some element of cost-share broader than present) makes the attainment of long-term savings at a significant level, illusory.
- For many providers (or perhaps all) the up-front investments in terms of technology and service accessibility are steep. This is dramatically so for post-acute providers as the Federal Government refuses to offer any resources for technology investment – not the case with physicians and hospitals. This is fundamentally illogical as a major element to delivering true savings is via the full use of alternative care settings – lower cost options for care such as therapy/rehabilitation, chronic disease clinics, etc. What occurs as a result of this enormous “up front” investment is a return on investment profile that is marginal to poor; in most cases (and in all that I have analyzed) below the organization’s cost of capital. Additionally, the prospective savings return is not fluid or rapid leaving providers with a self-funding equation of producing results, subsidization of investment and cash flow, netting a return that is below any other reasonable and readily available alternatives.
- The sharing of incentives is impractically aligned such that the largest sources of current costs stand to lose the most while the post-acute elements stand to gain the least, though as the above occurs, the distribution is far from quid-pro-quo. Briefly: ACOs begin fundamentally with physician groups and hospitals. To fully achieve functionality and to meet the objective of better care provided cheaper, other providers core to the care continuum must be brought into the ACO. Hospitals primarily have invested heavily in the current system of fee-for-service reimbursement, building environments that return the most on investment when heavily utilized on an in-patient and procedural basis. It is illogical to assume that for most hospitals, voluntarily steering utilization elsewhere to lower cost settings or abating certain levels of utilization altogether in exchange for “shared savings” spread across the ACO players is a winning proposition. On a similar plane, the same is true for physician specialists. Interventional cardiologists will be hard-pressed to forego any elements of business financially and in honest reflection, Medicare-age patients are a major (if not the primary) source of patients. For post-acute providers, utilization should likely increase as their services are more cost-effective but as established, these providers are bit players in the ACO game and while perhaps the most effective element in controlling costs and utilization, not proportionately rewarded. Their participation for example, is all down-streamed through the ACO.
Forming a post-acute synopsis of the current ACO landscape is as simple as this: Play at your own risk. There is little for most post-acute providers to gain within the present ACO framework, financially. All gains are more market and patient-flow related. The investments in terms of technology are steep and unsupported via government funding. Similarly, the net margin attainable via an ACO that is at “risk” or participating in shared savings is less than adequate to support a return on capital investment scenario that justifies the up-front costs. Personally, I would treat ACO participation at this stage as exploratory only; a devotion of only a small investment on-par and an expectation that minimal financial gain will occur, if any.
It stands to reason that some provider elements within the post-acute industry will stand to benefit better than others if for no other reason that they are already aligned from a business perspective to do so. LTACHs could reap significant market share if they can pose as legitimate first-admit options to an acute hospital. SNFs that are and have been, operating as true transitional care providers with in-house, integrated services could become major partner players within the ACO landscape. Key however to an SNF’s viability is some reform from three-day prior hospitalization requirements and relaxation/elimination of the Part B therapy caps. Home health agencies that already have an infrastructure for electronic charting, referrals and a strong physician partnerships and hospital referral/discharge relationships are the most logical post-acute, ACO partners. The ability of a home health agency to manage a more complicated patient directly discharged from a hospital as well as bring into the home, core chronic disease management services adjunct to physician care is an ACO necessity. As today and for the foreseeable future, ACO realization or not, Hospice will remain only a bit player, if that. While Hospice is an effective alternative to more costly inpatient care when continued inpatient care and/or other procedural steps are unwarranted, getting patients, their families/significant others, and the physician community in general to openly embrace Hospice early and frequently is not going to occur simply because of an ACO. Hospice, as I have written before, is a niche’ in the post-acute continuum and nothing within current trends suggest to me that the U.S. health system and patient expectations are moving to a deeper appreciation for or understanding of, the role hospice can and should play.
The Unraveling of the PPACA
OK readers and requesters, I haven’t gone, as Robert Frost wrote, into the “woods lovely, dark and deep” but I have been preoccupied by work and things familial. Sadly, energy wanes as one focuses intently on the delicate balance that is juggling a frenetic work schedule, a mile of other professional commitments, travel, and family. Returning slowly to regularity in life will allow me to re-connect and be once again, more “informationally” fluid.
A major emphasis of my work has been translating health policy into actionable strategies for clients. Some efforts are rather profound and deep and others are rather functional and tactile. The latter was the case with the Medicare RUGs III, MDS 3.0, RUGs Hybrid, RUGs IV debacle, partially created by the PPACA and partially due to the lack of foresight on the part of Congress. In the end, this mess evolved to where it should have been all along – a grouper and an assessment tool that actually matched. Today, we are simply left gazing forward at what might be once CMS figures out how the RUGs IV payments are flowing and whether providers are using the system correctly. I fully expect CMS, as they historically have, to go through a series of gyrations to fine tune the payment categories, equating the new system to that which was originally intended – something that is expense neutral (or close to) for the Medicare program. History being what it is (a reasonably good predictor of future behavior), we saw and lived through a similar dance with previous PPS system versions.
Turning to the title of this post and topically, a question(s) I am asked all too often: What can we expect or not expect to happen next under the current phase-in process of the PPACA? Following the law as written would provide an answer but clearly, the law as written is unraveling as we move seemingly, day by day. Consider the following events of recent weeks/months.
- A power-shift in Congress overloaded the House with Republicans and structurally, fiscal conservatives that swept into the majority on a platform of “anti-health care reform and anti-deficit spending”. As the House fundamentally controls the majority of appropriations and budget policy, funding barriers to continue the roll-out of the PPACA are certain.
- Over 1,000 waivers to certain elements of the PPACA have been granted, with more forthcoming, principally targeted at giving insurers, major corporations (multi-state businesses) and recently, labor unions relief from the mandated coverage limits imposed under the law. Secondarily, states have sought relief from various Medicaid provisions that came part and parcel with the enhanced FMAP provided under the Stimulus bill (corollary to additional elements required under th PPACA). From some vantage points, Medicaid may be the 10 ton gorilla in the room when all is said and done regarding the future of the PPACA.
- A series of court cases and resulting decisions have established the framework of a constitutional challenge to the law. Opinions/decisions affirming constitutionality were rendered by Democratic judicial appointees and opinions/decisions affirming unconstitutionally rendered by Republican judicial appointees. Clearly, the matter of constitutionality of the key requirement of universal insurance purchase/participation for every American will be settled only by the Supreme Court. The remaining question is “when”. If the key provision of universal (everyone must) purchase/participation is found unconstitutional, the PPACA is functionally dead.
- Within the past week or so, Secretary Sebelius of HHS publicly went on the “record” in Congressional committee testimony that the financing of the PPACA included effective double-use (double counting) of the projected $500 billion in Medicare savings that is projected within the law. This, while newsworthy, is not news to anyone who read the CBO scoring, read earlier testimony from Medicare’s Chief Actuary, or fundamentally, could follow basic arithmetic logic and principles. The Medicare savings argument was flawed when first proffered on so many levels. First, the savings was phantom money in so much that it required Congress to sustain actual rate cuts while relying on finding and stopping “fraud and abuse” thereby creating savings. If in fact, the fraud and abuse savings were or are known, a 2,000 page piece of legislation surely wasn’t necessary to end the fraudulent and abusive practices (the same being already illegal) and render the savings. Similarly, Congress has no known history of sustaining meaningful spending controls on entitlements, particularly Medicare. Finally, the physician fee-schedule fix was never incorporated into the PPACA or its financial projections regarding Medicare spending – this tally alone evaporates all if not the majority of the projected savings. Suffice to say, in order to net $500 billion in Medicare savings as foretold by the PPACA and its proponents, a perfect storm unlike any ever seen in Washington would need to occur, not to mention a real current spending reduction of close to $900 billion (adding in the Medicare physician fee schedule “fix” costs of approximately $400 billion as unaccounted spending, netted against the savings to achieve a net savings of $500 billion). For those who would argue that the physician fee schedule fix won’t cost $400 billion, I humbly reply “do the math”. Congress continues to avoid this issue in real time by creating temporary patches as the real numbers inclusive of a formulaic change in the law (change away from the sustainable growth algorithm) that prevents significant fee schedule cuts for physicians will require approximately $300 billion in “new” spending. Add another $100 billion or so for the programs such as outpatient therapies that are tied to the fee schedule and $400 billion is conservatively, a solid figure. The double-counting occurs as a result of creating the phony $500 billion and using the “dollars” to create new benefits and expanded eligibility levels and programs within the PPACA (primarily Medicaid expansion). The costs of these new benefits greatly exceeds $500 billion in reality and thus, no savings will occur.
- President Obama during a speech at the National Governor’s Association publicly announced his willingness to offer states greater flexibility and an accelerated date to file alternative plans to meet the PPACA requirements pertaining to exchanges and Medicaid expansion. In effect, President Obama stated that the law was still a “work in progress” and states could devise their own alternatives, provided the alternatives were as comprehensive and provided the same level of benefits as required under the PPACA. Until this revelation, states were operating under the premise that PPACA requirements dictating how Medicaid expansion would work, the exchange plan mandates for coverages, etc. were immovable objects, at least until 2014 by when, each state would have incurred enormous costs associated with implementation. The conclusion: More unraveling about to occur.
- Arizona became the first state in what promises to be a growing list, to apply to the federal government for a waiver allowing 300,000 people to be removed from its Medicaid program (disenrolled). Arizona, like multiple states, saw its Medicaid enrollment explode due to the economic recession and provisions within the Stimulus Bill which provided enhanced Medicaid matches conditioned upon the creation of certain new programs of benefits and coverages under Medicaid. The “rub” today is the sunset date of June 30 which ends the enhanced Medicaid funding. By law, the money goes away but the programs and benefits it funded must be maintained by the state; hence, the need for a waiver. The evaporating Medicaid enhancement exposes the enormity of state Medicaid and other budget deficits – in Arizona, $1.1 billion total deficit and potential savings of $541 million if the waiver is granted (fully half of the state’s deficit). From a PPACA perspective, the next move in Washington regarding a request such as that from Arizona will be fascinating. A core element within reform used to achieve the coverage objectives is an expansion of Medicaid. A waiver granted to Arizona is a virtual submission on the part of Washington that state Medicaid plans and budgets are incapable of meeting the financial requirements concurrent with expansion, absent significant cash infusions from Washington (not wholly provided with the PPACA). For those of us who closely follow health policy, we’ve warned loudly and frequently that Medicaid as presently configured, is the worst vehicle to use to expand coverage. The PPACA did nothing to alter the maniacal constructs of Medicaid, its funding, and its bureaucratic programmatic tenets. It further did nothing to allocate sufficient resources to the states to support expansion thus leaving states to bear an enormous primarily unfunded mandate within their existing and growing, bankrupt Medicaid programs. Aside from a Supreme Court ruling finding the PPACA universal participation/purchase requirements unconstitutional, the Medicaid issues are a strong and close second that could cause the PPACA to completely unravel.
The above notwithstanding, the PPACA gives us a glimpse into the future of health policy and ultimately, health care financing and delivery in the U.S. Regardless of whether the law survives in whole or in part, certain elements I believe, are new realities and I have counseled clients to begin to plan accordingly.
- Money is an issue and the goal of the PPACA while inherently flawed in the form finished, was to slow the growth of entitlement spending and “bend the cost curve”. This need or goal is pressing for the U.S. as entitlement spending cannot be sustained at is present level. This simply means that Medicare and Medicaid are fundamentally and completely exhausted (financially and programmatically). Regardless of form and resultant policy, reimbursement levels will remain fundamentally flat to trending down – no other way for them to go unless new tax revenues are allocated to each program (not feasible). Kicking the issue down the road as Washington and states have done is no longer an option as the “road” has ended or its end is clearly in sight. The best providers can hope for is flat reimbursement with a recognition on the part of legislators that greater flexibility from overbearing regulations is needed to help offset the revenue loss (if I can’t pay you more I can at least make it cheaper for you to operate).
- Greater emphasis will be placed on finding and eliminating waste and fraud – already happening but ramped up to an even higher level. Realize that Medicaid and Medicare are self-wasting disasters by design in terms of how modern health care is delivered and financed but vigilance and enforcement is feel-good activity; results often are minimal in comparison to costs to obtain the results. Providers thus will contend with more questions, more rules for disclosure, more reporting, more probes and more audits. Clearly, the costs borne by providers to monitor and justify their billing practices to Medicare and Medicaid will rise.
- Infrastructure investments in terms of technology will rise as providers will need to justify more directly, their care vs. their bills. Simultaneous (or at least proximal), PPACA provisions and other federal provisions regarding privacy, electronic billing, health information exchanges, etc., will not evaporate entirely. Providers will need to be able to communicate across functions and across related and unrelated provider organizations, patient information, quality measures, and care information (treatments plans, history, orders, etc.).
- Terms and concepts brought forth under the PPACA such as Accountable Care Organizations, Competitive Bidding and Bundled Payments are here to stay, regardless of the life or death of the PPACA. They make too much sense intuitively even if the same translates poorly in federal policy. Organizations that take the “conceptual elements and goals” of things like Accountable Care Organizations and begin to develop programs and structural changes in “how” they do business will be far better off than those who believe that these concepts will die as the PPACA continues to unravel. A future where reimbursement is more closely tied to outcomes and penalties for events such as avoidable re-hospitalization, repeat hospitalizations, avoidable institutional infections, etc. is virtually certain.
- A renewed focus on primary and community based medical care, prevention, and chronic care management is forthcoming – soon. Philosophically, although wrongly implemented and structured, the PPACA was Washington’s politicized attempt to create this focus. There is solid logic behind such a focus as diminution in each of these areas (or in some cases, failure to fully launch) directly correlate to rapidly rising health costs (and correspondingly high rates of expensive, preventable chronic illness such as diabetes, obesity, heart disease, etc.). Even Washington knows that ultimately, funding and enhanced payment for better primary, community and chronic disease care is necessary and smart. The problem is, as has always been the case with policy elements measured in the billions or trillions of expenditures, politics gets in the way of functionality – hence the PPACA.
Enhanced FMAP Funding Moving Through the Senate
On December 31st of this year, enhancements made to the Medicaid FMAP (Federal matching dollars) via the ARRA (Stimulus or American Recovery and Reinvestment Act) are set to evaporate. In a series of bills and other legislative initiatives throughout the spring and early summer, Congress has failed to extend funding to prevent the evaporation of the additional FMAP funding. See my related posts below for more information on Medicaid, the FMAP provisions, and the legislative activity to extend the enhanced match provided under the ARRA.
Yesterday, on a procedural vote to end debate in the Senate, another version of a “jobs” bill containing a slimmed down extension of the enhanced FMAP crept forward. The vote to end debate and send the bill forward for a final vote was 61-38. With such a definitive margin in support of a vote, it is all but certain the bill will pass on a final vote. The measure then must go to the House, presently in recess, where it will be either voted upon “as is” or modified and returned to the Senate. Speaker Pelosi has indicated that she will call the House back to session in order to produce a final bill for President Obama’s signature, prior to the re-opening of schools in late August/early September.
The bill provides $26 billion in additional funding with $10 billion targeted toward education and public service employment and $16 billion for extension of the enhanced FMAP. The $10 billion is designed to prevent the lay-offs of teachers, firefighters, police and other municipal service worker jobs that are purportedly “at-risk” once continued funding provided in the ARRA evaporates. Communities, states, and civil service employee unions have been pressuring Congress to extend some levels of Stimulus funding, claiming that without additional dollars, budget cuts would cause lay-offs of key positions such as teachers. Republicans have effectively stalled previous legislative attempts to extend additional funding claiming that the dollars will add to the deficit and are effectively federal bail-outs for the teacher’s union and other municipal service employee unions. In this round, Senate Majority Leader Reid brought forth additional cuts in other programs plus tax increases to generate a revenue offset to the new spending. The resultant funding shift caused Republicans Snowe and Collins to vote in favor of ending debate (a show of support for the bill).
The $16 billion targeted toward additional Medicaid funding was heavily lobbied for by states and health care trade associations as critical to prevent reimbursement cuts and benefit reductions for seniors, the poor and the disabled. With 48 out of 50 states having moderate to severe budget deficits and current Medicaid structural deficits, loss of the enhanced match would necessitate programmatic cuts. In some cases, states that were in a July 1 fiscal year budget process and/or December 31 fiscal year budget process already installed programmatic cuts and reimbursement changes as the timing of their budgets required an assumption of lost Medicaid funding coming at the end of the year.
While the probability of an extension to the additional FMAP provided under the ARRA appears strong, the House must still approve the bill prior to the funding becoming an actuality. The timing will clearly assist most states but in some cases, a portion of the cuts already enacted in certain states will remain. Additionally, the added funding is not without an early 2011 sunset date or in other words, the $16 billion is only a temporary “stay” of execution for state Medicaid budget problems. In all likelihood, unless Congress consistently re-ups with more funding for continued FMAP support, states will need to significantly restructure their Medicaid programs over the next twelve to eighteen months in order to maintain basic solvency. With the economy still in a very slow recovery mode, most states won’t see economic growth and resulting revenues from taxes sufficient over the next year to avoid cuts in their Medicaid programs.
As the Home Health and Hospice World Turns: Part II
In Part I, I wrote about my last week’s conversations, etc. regarding the home health industry, specifically Amedysis, the Senate Finance Committee inquiry, the industry impact via the PPACA and the likely consolidation and merger trends that are approaching. Suffice to say, not all of last week’s news and conversations focused on the home health industry as over the last thirty days, much has happened in the hospice industry as well. The difference between the two industries is that in hospice, the major news involved a significant merger and in home health, the major news involved the legal and compliance issues of the largest provider entity – Amedysis.
The hospice industry saw, via the merger between Gentiva and Odyssey, the creation of the largest home hospice company in the industry. Gentiva, while also a provider of home health, clearly chose to direct more of its attention to the hospice industry, moving from a moderate player in the industry to the predominant player via the acquisition of Odyssey. Odyssey, while not as large as Vitas (the former largest hospice provider), held substantial market share and presence and in many regions and distinct market areas, competed head to head with Vitas for patients. For more information on the Gentiva/Odyssey transaction, see a related article in my company’s E-Newsletter at http://wp.me/pD9Ac-4Q .
Analyzing this merger leads me to a series of assumptions about where the hospice industry is at present and where it is likely headed.
- Hospice is now clearly a mature market or in other words, a market that is unlikely to grow significantly over the near to intermediate term horizon. Despite a fairly profound demographic shift occurring over the next twenty to thirty years (the maturation of the baby-boomers), there is no real indication even with this influx of older adults, that hospice as model of care, will gain in referral popularity. While seniors utilize hospice more in total numbers than any other age cohort, as a percentage of the total cohort, utilization trends show little forward growth. There are a number of reasons why;
- Culturally, U.S. medicine and the U.S. population still values the process of cure or health restoration far greater than the concept of natural death. As hospice is a downstream referral (the referral comes typically from non-palliative medicine trained physicians or via hospitals and/or long-term care providers), the hospice industry relies on the referral source to be; a) knowledgeable about the value of hospice and how it works for patients and their families, b) willing to forego potential incremental revenue for continued care by making the referral to a hospice, c) willing to engage the patient and the family in a difficult conversation regarding end-of-life and treatment futility. As long as these dynamics remain in place to the extent they presently are, the growth of utilization will remain fairly stagnant.
- Financially, the incentives for referrals to hospice don’t truly exist within the current U.S. system. There are no barriers in-place to reduce the reward (payment) for continued acute, diagnostic or curative care (choose your own verbiage) and as a matter of fact, the reimbursement systems (private and public) pay incrementally more for more intense care than palliative care, even if arguably, the care is futile. As only patients and their respective treating health professionals can conclude that continued curative care is futile or unreasonable, the process of garnering more money for more treatment remains intact as a perverse incentive.
- While not for hospice people or physicians trained in palliative medicine, terminality remains an uncomfortable and even disputed condition for many physicians. Patients and there families still wish to avoid discussions far too long and in some cases, avoid the discussion altogether. While in-roads are perhaps being made in some medical centers and in certain communities, these in-roads are miniscule and not evident of a ground-swell movement toward open discussions regarding end-of-life decisions.
- As with the home health industry, the movement in Washington is toward curtailing the growth of hospice spending. The prevailing feeling in Washington policy arenas, supported by Medpac, is that the hospice reimbursement under Medicare is too generous and the benefit itself, easily manipulated and poorly defined. While the PPACA did little to negatively impact the hospice benefit or payment, the recommendations directed to the Secretary of HHS in the language intones significant changes forthcoming.
- Reimbursement under Medicare will change such that early days in the initial benefit period will be paid more as will days at the end of the patient’s stay (proximal to death). Days during the interim, longer stays will be reimbursed with lower payments. The point here is supposedly a recognition that patients with long stays have periods of stability necessitating far less care from the hospice.
- More emphasis will be placed on denying stays for non-specific terminal conditions or denying portions of stays. CMS has determined that too many longer stays are related to diagnoses such as terminal dementia, failure to thrive, etc. In order for these stays to be covered, the onus will fall on the hospice to provide very detailed documentation supporting patient decline.
- More emphasis will be placed on physicians to document terminal conditions and to prognosticate length of likely survival, especially at recertification periods. More direct “hands-on” involvement of physicians will also be required (physically seeing the patient).
- Certain types of stays and relationships between hospices and nursing homes will be closely monitored and reviewed. CMS and Medpac have determined that hospice stays in nursing home environments on behalf of nursing home patients are considerably longer and possibly in many cases, in violation (the hospice) of the conditions of participation as hospices utilize nursing home residents as sources of revenue but often, fail to meet the care requirements (using the nursing home as the source of care and service) under the hospice federal code. Additionally, CMS and Medpac have placed the target for reform squarely on the large for-profit hospices such as Vitas, Gentiva and Odyssey which have typically used nursing homes as major sources of referrals for hospice patients.
- The PPACA, while not bending the cost curve or reducing the overall level of national expenditures on health care, does change in the interim, the overall health care economy. Providers are re-positioning and re-grouping to combat what they perceive, and in some cases know, will be negative changes to how they presently do business. Providers which rely heaviest on Medicare as the bulk of their overall revenues will move the fastest and the most aggressively to alter their current business practices, knowing that regardless of the overall status of the PPACA (repeal, restore Medicare cuts, etc.), the health care economy is entering a long period of fiscal constraint – payments will never be as high or as fluid as they once were.
- Because of points 1, 2 and 3 above, the industry will head into a period of consolidation and even, contraction. The Gentiva/Odyssey merger is a signal of the maturity of the industry and the trend toward tighter regulation of hospice stays under Medicare (the bulk of the hospice revenue) and less economic value per each stay. Lower future revenues per stay, either via reimbursement cuts or regulatory constraints placed on the length of stay, means more overall stays are required to equal the same or greater revenues going forward. As the growth curve of new “potential” referrals is flat, the only real source of new business or referrals for a provider is acquisition of existing market share (buying someone else’s referrals). In order to maximize profitability in an environment where the market is mature and the total revenue per each case is flat to shrinking, providers will have to adopt one of the three strategies below.
- Acquire other providers to build more referrals or volume. While each patient stay will be economically less valuable, increasing the total number for a provider while maintaining expenses on a ratio basis, lower than revenue, will provide a method to achieving overall net income targets - critical for publicly traded provider organizations.
- Shrink the organization to fit the new revenue and length of stay realities that are in place and forthcoming. An organization that can right-size its operations to fit the new business paradigm will be smaller but potentially equally or perhaps, more profitable. The risk here is that provider organizations that are acquiring market share may marginalize some markets such that a shrinking provider (by choice) loses desirable market share.
- Expand non-Medicare business and add complementary businesses that may provide incrementally equal or more revenue than that which is lost under Medicare. Arguably, this strategy may only work for regional or single market providers and those that have strong system ties (hospital owned, etc.).
One final point to note concerns the economy. Absent from the above factors I laid out influencing the hospice industry is the stagnant economy. With recovery a daily discussion regarding likelihood and timing, current uncertainties persist that impact hospice providers rather dramatically.
- The overall number of paying patients available to all providers within the health care economy has shrunk in recent years. This shrinkage is primarily due to job losses and benefit losses. Until employment rebounds and jobs with benefits become more plentiful, consumers for health care in the form of paying patients will remain down.
- When fewer paying patients are in the queue, those patients that do have a payer source, even a less than optimal government payer source, are prized commodities. Each provider wants a piece of the same paying patient.
- Hospice is as I pointed out, a downstream referral. When the upstream referral source, principally hospitals, lacks sufficient paying patients in the queue to replace current patients it “may” customarily refer downstream, it holds the paying patient longer, either delaying the referral and the portion of revenue that comes with a longer stay or avoiding the referral all-together. Similarly, all downstream referral sources such as nursing homes compete aggressively for the referrals even though a referral of a terminal patient (or potentially terminal patient) is ordinarily, not a prize catch for most nursing homes. This competition erodes the number of total possible referrals available to a hospice.
- Each patient has an economic value to a provider. When a patient with a higher economic value (a better payer source) are lacking, providers sort down to the next patient level. This sorting process occurs as a result of too few patients with payment sources available to match the supply or capacity within the existing provider universe. Some markets hit hardest by the downturn will evidence this reality in greater depth and unfortunately, with greater persistency. For hospices (and all downstream providers) in these heaviest hit markets, referrals have trended down and will stay down until the supply of patients with payment sources increases and specifically, the supply of patients with better payment sources and today, deferred health care needs (e.g., elective surgeries such as joint replacements, etc.).
As the Home Health and Hospice World Turns: Part I
Sorry for borrowing (piece of) a soap opera title for this post but it is rather appropriate given the news that occurred over the past 30 days. Just this past week, I’ve been interviewed by two business newspapers and on the phone with an investment banking firm I consult with from time to time regarding Amedysis, Gentiva and Odyssey’s merger, the pending impacts of the PPACA on the home health and hospice industry, mergers in the industry in general and using a “catch-all”, what the “heck” is going on in the home health and hospice sectors. With a chance to recoup over the long 4th of July weekend (and organize my notes from last week’s conversations), a post on what all the conversations were about seemed appropriate.
Amedysis: A month ago, on my company’s E-News site (http://apexhealthcareconsultants.info), I edited an article regarding the Senate Finance Committee’s inquiry into the Medicare billing practices of a handful of very large home health agencies (Amedysis, Gentiva, LHC Group etc.). The inquiry is a result of an article that appeared earlier in the year in the Wall Street Journal, focused quite intently on Amedysis’ billing practices; principally as applicable to therapy visits. The fall-out since the Wall Street Journal article and the Senate Finance Committee article is two-fold. First, the class action suit (I’ll touch on it in a bit) and the hefty drop in Amedysis stock price.
In brief, the class-action suits (there are three) focus primarily on the perspective of shareholders (the “class”) and alleges that the questionable Medicare billing practices (none of which at this point, CMS or the OIG has taken specific issue with) served to artificially increase the share price of Amedysis stock. The allegation of abuse of the Medicare system, prior to any action taken by the federal regulatory system in the form of a fraudulent billing investigation or claims investigation, is a bit different in-so-much that it essentially accuses the company of manipulating its earnings as opposed to causing harm to any patients or group (class) of patients. The “harm” for shareholders is the drop in price that would/did occur as a result of the alleged fraudulent billing practices. To add a twist, the suits also allege Sarbanes-Oxley violations which require the corporate officers of publicly traded companies to abide by a code of ethics. Amedysis settled an allegation of fraudulent Medicare billing practices in 2003 (for Medicare activity between 1994 and 1999) and as part of the settlement, expanded its corporate compliance activity/program. Additionally, since 2003, Amedysis has had notable turnover of the key financial executives (CFOs primarily) with active rumor-mill chatter focusing on the cause related to overly-aggressive Medicare billing practices. Medicare represents 87% of Amedysis annual revenues, by far the largest percentage for any home health provider in the industry.
As Paul Harvey (famous radio newsman now deceased) was famous for; “Now, for the rest of the story”. There are a number of different and integral factors in play that are unique to Amedysis but also, symptoms of an industry, a payment system and a flawed health care reform law.
- The issues regarding possible Medicare over-billing or at least, aggressive billing are not new for Amedysis. Their growth has been remarkable and unique for an agency so fully immersed in a government revenue stream. What is unique at this point in time is that the Senate Finance Committee inquiry, Wall Street Journal article and now the class-action suits come in advance of any customary federal regulatory actions. I do suspect that CMS and the OIG will enter the fray in the near future.
- Medpac has reported to Congress repeatedly that the Medicare payments to home health agencies were “lavish”, producing double digit profit margins on average, for most Medicare home health encounters. The PPACA (reform law) effectively cut Medicare payments to home health agencies and increased the documentation requirements for agencies to justify the necessity of continued visits.
- The feds have aggressively stepped-up their search via Recovery Audits and targeted billing inquiries for Medicare over-payments or more appropriate, Medicare fraud activity. This activity is two years old and growing each year with additional force. The writing is/was “on the wall”.
- To fully understand “what” is at the core of the Amedysis issue is to understand the age-old economic axiom that states, “what gets paid for (rewarded) gets done”. Medicare provided a utilization incentive tied to a certain number of therapy visits ($2,200 for 10 visits). Agencies thus targeted patients and developed care practices that maximized the opportunity to garner the incentive payments. In a typical government move, CMS rescinded the incentive payment as it became obvious that agencies were “gobbling-up” the requisite visits and conforming patients to achieve the incentive. A more meager incentive of a few hundred dollars is now provided at six visits, fourteen visits and twenty visits. Oddly enough, companies today seem to provide far more “six visit” encounters than twenty visit encounters (profitability vs. cost for twenty visits as well as a likely evident decline in medical necessity by the twentieth visit). Amedysis of course, is not alone in seeking to tie care provided to reimbursement nor is the home health industry alone in gaming the Medicare reimbursement system for additional dollars. For-profit hospitals, nursing homes and hospice agencies (and non-profits) alike are skilled at “Medicare maximization”, effectively matching what Medicare will pay with certain types of referrals, matched against the costs incurred to care for certain types of patients. This game goes on year-in and year-out with CMS constantly tweaking PPS categories to incent providers to take certain patient types (payment was too low) and to reduce the profitability of other patient types. In short, what gets paid for gets done.
- The PPACA did nothing to reform the system and arguably, it made it worse by attempting to extract funds via reimbursement cuts from Medicare. Of course, it is unlikely these cuts will be fully made or sustained as Congress has never shown the political will required to cut provider payments. By not truly reforming how Medicare reimburses providers for care, the PPACA only served to layer on huge amounts of bureaucracy to an already antiquated reimbursement system. In the end, nothing changed in terms of how Part A and Part B of Medicare pays providers; only the amounts “theoretically” changed. As a system, Medicare pays more for more care and higher acuity care. Providers will naturally gravitate their referral gathering efforts and marshall their care delivery systems toward the patient encounters that create the most “spread” (cost vs. payment). As the overall universe of these “profitable” patients is somewhat fixed, the provider universe is forced to unnaturally stretch the definitional boundaries of patient types (upcoding in plain health care vernacular). In other words, there are not enough truly “organically” existing patients that fit the best (most profitable) reimbursement categories but there enough that are perhaps, at the fringes. Add the fringe patients with a bit of creative tweaking via assessment and documentation to those that organically exist (fit the exact patient type) and presto, sufficient current volume for all providers. The difficulty for regulators and others who would charge that the fringe patients are not truly members of the organic group (those whose care requirements exactly match a certain reimbursement category or categories) is “proof”. The provider and medical communities are far better versed in assessment techniques and documentation requirements and as such, little can be done to reign in this reimbursement “three-card Monty” game. Until the reimbursement is reformed to reward better, more appropriate and efficient care versus “more” care, the over-reimbursement problem will remain, as it has for decades dating back to when providers ballooned certain costs to receive higher per diem rates from Medicare (under the cost-based reimbursement system).
What comes next in this paradigmatic shift in the home health world is merger/consolidation. As the profitability of one element of Medicare business shifts, larger agencies will acquire smaller to medium-sized agencies in order to increase market-share, lever infrastructure, and to supplement lost incremental margins with volume. Simply put, if the relative margin for one type of encounter shrinks, recouping that lost margin (or at the least the majority of it) becomes a function of incurring more encounters with smaller margins. As long as the incremental costs of additional capacity to handle greater volume remains in a ratio, lower than the net revenue received from the greater number of “less profitable” encounters, it is possible to generate a similar level of organization-wide, net operating income. The fastest and arguably most efficient way to create incrementally more encounters is to acquire someone else’s encounters at a price-point that is sufficiently low enough to create virtually (virtually to mean within a short time-frame) instant margin via the increased volume/market-share.
In effect, smaller agencies with less volume to spread the reimbursement loss/risk become attractive targets in this environment. A smaller agency’s value drops as its revenue/margins shrink and with limited geographic presence and referral markets to spread the lost revenue risk across, the entity price declines. The decline in entity price is attractive for a large acquirer seeking solely market share and/or incremental volume. In short, the acquirer is capable of paying less for the economic value of the entity (it has declined or will declined) which it really doesn’t want, save the referral market or incremental patient volume which it desires. The value is purely found in the market share or referral base, not in the economic metrics or financial value of the entity. For a larger provider, acquiring smaller agencies within areas that the larger provider presently doesn’t serve or undeserves is the goal. The “merger” is almost protectionist; protecting profit margins or revenue streams that are shrinking by increasing volume and thus (hopefully), more overall revenue, equalizing the lost revenue once gained per encounter during periods of higher reimbursement.
In the next post, Part II, I’ll review what is going on in the hospice industry and why the Gentiva/Odyssey transaction is significant in terms of a harbinger of activity yet to come.
Doc Fix Survives, Medicaid Ehanced Match Doesn’t
In another procedural vote on the revamped Jobs bill in the Senate, Democrats fell short of mustering 60 votes to end a Republican filibuster, effectively ending for now, legislative efforts to extend unemployment benefits. The vote count was 57 to 41 to continue debate. Dying with the extension of unemployment benefits are a series of pro-business tax cuts, tax increases on domestically produced oil and on investment fund managers as well as the extension of the enhanced Medicaid match provided in the Stimulus bill, set to end December 31 of this year.
In an attempt to keep the bill alive, Senate democrats removed the provision related to Part B/physician fee schedule cuts and crafted a smaller, temporary fix (see my posts from last week on this same subject). This separate “temporary” patch provides for a 2.2% increase in the Part B fee schedule and delays any cuts to physician fees until November 30. Prior legislative efforts deferred the fee schedule cuts, pegged at 21%, until June 1 of this year. This past week, CMS began paying claims incurred after June 1 at the reduced fee schedule rate. In response to an enormous push-back from physicians and the health care community in general, the House passed this temporary Senate measure, sending the bill to the President for signature. Assuming the President signs the bill, providers that have submitted claims for services provided after June 1, will have to re-submit their claims to assure correct payment, including the modest increase of 2.2%.
What’s next (as I have been asked routinely over the past two-weeks)? Is the enhanced Medicaid match extension dead? Legitimate questions, no doubt. In brief, here’s my take or EWAG (educated, wild-assed guess).
- Typically, when legislation such as this stalls, there is a single, two-ton elephant that needs to be circumnavigated or removed from the room in order for things to proceed. In this case, there are three elephants in the room. First, and larger in size than the other two, is the upcoming mid-term elections. The current “tone” in electoral politics is not good for Democrats and decidedly, anti-incumbent, anti-big government, and bail-out weary. Any legislation that looks-like and feels-like a bail-out is perceived as poisonous by incumbents headed toward a November election date. Even seats once believed safe, are up for grabs and some, such as Sen. Boxer in California and Sen. Reid in Nevada, are considered bell-weather contests marking a shift in electorate sentiment (assuming losses on the part of Boxer and Reid). The second elephant is the rising federal debt, now at $13 trillion and climbing. This elephant is a cousin of the first and the Democrats are beginning to feel ownership, correctly or incorrectly, of this elephant. With the EU struggling with an enormous debt load, principally due to burgeoning social welfare programs and a slow economy, economists, the Fed, and investment rating agencies such as Moody’s, are warning that the U.S. debt load could pose the same level of risk to the economy as is present across much of the EU. In fact, the U.S. debt load is perilously close to the value of the GDP; an indicator of a level of negative economic wealth (more debt than assets). Saving an economic lesson for later, the rising debt load is potentially crippling in so many ways to a recovering economy (enough said for now). The third elephant is the moribund U.S. economy, incapable of soaking up large additional amounts of debt and virtually non-responsive to the government’s deficit spending in the form of targeted stimulus. Simply put: The Stimulus and the continued bail-out packages coming from Washington have done virtually nothing to stimulate recovery while adding billions to the debt level. Arguably, the instability and the spending levels have hurt the recovery more than helped. With these three elephants present today in the House and in the Senate chambers, very little prior to November (mid-term elections) can get done and what will get done will be temporary in nature (the doc-fix for example).
- I’m not sure that the enhanced or extension of the enhanced Medicaid match is dead but it is definitely, on life-support in its current form. It seems that the tone of this Congress now is to avoid issues that include big price tags unless such an issue is immediately pressing (the doc-fix) and can be pushed every so slightly, down the road, but just by a bit. The problem here is that many states are stuck with June 30 fiscal years and/or balanced budget requirements. For these states, the uncertainty of additional Medicaid match dollars from the Feds requires establishing a plan that includes cuts, reimbursement and benefit levels combined. The real devil in some cases, is for states that have expanded their Medicaid programs via the use of added match funds through the Stimulus, as the expansion components cannot be cut by law. The additional funds via the Stimulus bill came with “golden handcuffs”, requiring states that used the funds via expansion, to maintain these services. In short, Medicaid is a real mess but frankly, that is nothing new given how ridiculous its financing provisions are and how “federal” money hungry the states have become, selling their fiscal stability souls for additional federal funds and then shifting budget problems elsewhere, hoping new or additional federal money would continue, bailing out their current spending sins.
- The logic of once again deferring the Part B cuts, now to November, is to buy Congress time to craft a permanent solution. Anyone who buys this rhetoric needs professional counseling. This issue is nowhere close to a permanent fix as such a fix requires political willpower (non-existent today), a revisit to the recently passed PPACA where the budget numbers are already out of whack, and finally, a commitment to spend new money as part of the solution. Fixing the problem means abandoning the flawed sustainable growth formula, recasting the actual costs associated with the PPACA (estimates of deficit reduction relied heavily on unsustainable and impractical Medicare cuts), and finding new money within the budget, deficit or not, to create parity and stability within the Part B fee “world”.
Senate Doubles Back on “Doc Fix” Legislation
After a mid-week roadblock was established on a procedural vote all but derailing the American Jobs and Closing Tax Loopholes Act and the integrated provisions that included a “doc fix”, the Senate doubled-back on Friday and passed a separate measure that patches the pending cuts (21%) in the physician fee schedule set for June 1. The latest temporary measure stalling cuts as required by the sustainable growth formula underpinning the current Medicare reimbursement calculations for Part B services (physician fees, therapy rates, etc.) expired on June 1. In the interim, in anticipation of another patch to the cuts, CMS directed its fiscal intermediaries to “hold” or pend claims after June 1. The Senate legislation now must return to the House where as of today, reception as indicated by Speaker Pelosi is not likely to be “warm”.
The Senate’s fix calls for a 2.2% increase to the current fees (non-cut) through November 30 at a price tag of $6.4 billion. Integral within this temporary measure are funds to not only augment the physician fee schedule but to also impute the same increase to other health care services tied to Medicare Part B such as outpatient therapies. Come November 30, Congress will have to either have a more permanent solution in-place or additional temporary measures will be required.
Physician reaction was as expected; frustration and mixed anger. Physicians continue to grow more hostile toward Congress’ strategy of temporary payment fixes, calling for a revamp of the convoluted and antiquated formula known as the “sustainable growth formula”, tying Medicare reimbursements under Part B to economic growth in proportion to overall Medicare outlays. During health care reform discussions and in the initial Senate version and subsequent House version of the Jobs and Closing Tax Loopholes Act, longer term fixes to the fee schedule were integrated with larger costs. Politicians from both parties, worried about rapidly increasing deficit levels, systematically gutted these longer-term measures to the point where no legislation addressing the pending cuts was in place until late Friday.
The lengthy delay in addressing the pending cuts of June 1 caused CMS to extend a “hold” on claim adjudication, effectively stalling claims from June 1. On Friday however, CMS directed its fiscal intermediaries to begin adjudicating claims using the discounted fee schedule. In short, claims from June 1 will now be processed with a 21% reduction. CMS’ reasons for starting to pay claims at the discounted level are two-fold: First, longer delays in adjudicating claims will produce a significant back-log in claims, headed into the 4th of July holiday period; and second, the Senate legislation must return to the House for passage and preliminary indications from the House are that passage in its current version is unlikely. Claims can ultimately be re-processed once a permanent (or more lengthy temporary) fix is reached however, such re-processing is neither quick nor without additional work on the part of providers and CMS’ intermediaries.
There is no question that physicians as well as other provider groups are growing tired of Congress’ inability to resolve the Part B fee schedule issues. With health care reform a less than fully embraced law and policy analysts and economists pushing Congress on rising deficits, the political willpower to address Medicare issues involving “new” deficit spending is almost gone. In fact, many policy analysts and economists, including myself, have consistently pointed out that Congress lacks the political will to pass along the steep Medicare cuts imbedded in the PPACA and integral to its claim of “deficit reduction”. The “doc fix” saga is clear evidence of Congress’ inability to live up to the spending cuts it created under the PPACA.
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