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.
OIG on Hospice: Restructure Hospice Payments for SNF Residents
This past week, the OIG released a report that represents a more definitive study of hospice payments and utilization trends under Medicare. The report is effectively a follow-up to recommendations made in MedPac’s annual report(s) to Congress. The report provides a review of OIG’s analysis of the growth of Medicare covered hospice patients over the period 2005 – 2009, specifically as such growth relates to the provision of Hospice services within SNFs. For the last three to four years, MedPac and to a lesser extent OIG, have commented about the rapid growth of hospice utilization under the Medicare benefit and the corollary relationship between this growth and SNFs, particularly as the same relates to for-profit hospice organizations. For more on MedPac’s report to Congress and their recommendations/analysis regarding Hospice, see my related post on this site at http://wp.me/ptUlY-8e .
Per OIG, Medicare spending for hospice services provided to SNF residents increased 69% between 2005 and 2009. In total dollars, the amount grew from $2.55 billion to $4.31 billion. During this period, the number of hospice beneficiaries residing in SNFs grew by 40%. Not surprising, during this same period the total number of hospices participating in Medicare also grew; the growth dominated by for-profit organizations. According to the OIG, hospices organized for-profit received higher levels of reimbursement on average (29%) compared to non-profit and governmental operated hospices.
Specifically related to hospice services provided to SNF residents, 8% or 263 hospices had two-thirds of their cases comprised of SNF residents. Of this group of 263, 72% were or are, for-profit. In total, 56% of all hospices participating in Medicare are for-profit. Comparing reimbursement or payments and utilization, the group that incurred two-thirds of their cases via SNFs was paid more per beneficiary ($3,182) and the average length-of-stay in “benefit” was three weeks longer than the median average length of stay across the industry.
| Table 1: Medicare Hospice Care from 2005 to 2009: Growth in Spending and in Number of Beneficiaries | |||||
| 2005 | 2009 | Percentage Increase | |||
| Spending on hospice care in nursing facilities | $2.55 billion | $4.31 billion | 69% | ||
| Spending on hospice care in all settings | $7.92 billion | $12.08 billion | 53% | ||
| Number of hospice beneficiaries in nursing facilities | 240,000 | 337,000 | 40% | ||
| Number of hospice beneficiaries in all settings | 871,000 | 1,085,000 | 25% | ||
| Source: OIG analysis of CMS data, 2010; and OIG,Medicare Hospice Care: A Comparison of Beneficiaries in Nursing Facilities and Beneficiaries in Other Settings, OEI-02-06-00220, December 2007. | |||||
As I have written before, the dominant profile of SNF residents enrolled in hospice includes Medicaid as the primary payer source, a primary diagnosis for SNF residency of Alzheimer’s disease or some other form of dementia or mental disorder, and the SNF in which they (the residents) reside has a payer mix that is at least 42% Medicaid. Additionally, the SNF resident has resided in the facility for a period of time (months) prior to enrollment within the hospice benefit. None of this information is new or should I say “news”. The SNF industry has quickly learned that transferring a certain liability for the cost of care of a Medicaid resident (drugs, certain supplies, some staffing) to a hospice that receives a routine hospice benefit under Medicare is financially advantageous, particularly since Medicaid continues to pay for the room and board costs of the SNF. In fact, the vast majority of state plans do not coordinate benefits with the Medicare Hospice benefit, leaving the facility to collect the full Medicaid rate for the resident’s stay while transferring an increment of care costs to the Hospice. Clearly, this niche is advantageous financially for the Hospice and the SNF. The Hospice, given the infrastructure of caregivers and other on-site SNF staff, can minimize its visits (substantially less in number than provided to a typical home-bound patient), effectively increasing its marginal profitability. The SNF transfers certain costs to the Hospice, now paid as part of the Hospice benefit while still receiving the total amount of the Medicaid payment. While I won’t say this makes Medicaid a profitable payer, it certainly increases the marginal revenue contribution from a group of now, hospice covered residents. As the OIG and MedPac have observed, the SNF resident hospice patient tends to be a patient with a terminal condition but arguably, one that is not necessarily imminent and/or in some cases, even clinically supported. The end or net result is a patient profile that stays longer (covered) under the Hospice benefit.
Concluding within their report, the OIG makes two recommendations that on their face, don’t vary much from recommendations made by MedPac. Their first recommendation is to monitor the activities of hospices with a high percentage of cases occurring in SNFs. Their second recommendation is for CMS to alter or lessen, the level of reimbursement paid to a hospice for care provided to an SNF resident. The report contains no recommendation of “how much” less. MedPac in comparison has recommended that the Hospice benefit be scaled for SNF residents – higher on admission, less in the middle term of the stay, and higher again close or precedent to death. For MedPac, this method more closely reflects the resources used or costs incurred by a hospice during a patient’s length of stay.
As I have indicated, this information is not new nor are the concluding recommendations. The Medicare Hospice benefit is dated and not reflective of how terminal care occurs and/or should occur. The system is ripe for fraud as CMS has not taken its time to scrutinize claims or the validity thereof, particularly for diagnoses that traditionally do not correlate to quick or timely death. All too many for-profit, non-hospital aligned hospices have realized that sans the SNF resident market, the actual hospice market is fairly limited and not sufficiently deep to support the current number of agencies. In other words, a hospice organized for-profit would likely have a difficult time sustaining its margins and building a sufficient base of business without SNF contracts. Given this reality, and the reality that SNFs with large Medicaid payer percentages and long-term stays among its residents also benefit via a favorable hospice relationship, the market reality becomes the same as concluded by the OIG. Changing this paradigm won’t occur until three core elements of reform pertaining to the Medicare Hospice benefit occur. First, refined clarity of diagnosis appropriateness and stronger requirements on re-certification for additional benefit periods. There exists sufficient clinical information to create clarity, even for end-stage Alzheimer’s/Dementia diagnoses. Second, payment changes that take into account coordinated or bundled payments for Medicaid SNF and private-pay residents. Neither the SNF or the Hospice should benefit disproportionately when a patient is on hospice. Third, requirements of disclosure for all hospice/SNF relationships and contracts and requirements that no one hospice may provide exclusive services to an SNF. Too many of the most egregious situations I have encountered occur when one hospice has entered into multiple SNF contracts, dominating the market and creating blatant ”sweetheart” relationships. Additionally, CMS must take proactive measures to perform timely claim reviews of SNF residents receiving hospice services – for all diagnoses – particularly involving disproportionate case-mix hospice providers (hospices with large number of SNF residents enrolled with certain qualifying diagnoses such as dementia, failure to thrive, and Alzheimer’s).
Medicare SNF Cuts: Fact, Fiction, Probability
In early May, CMS released its proposed rule for FY 2012 concerning Medicare PPS reimbursement for SNFs. As most followers of the industry from investors, to operators to developers know by now, CMS dropped a “bomb” to the industry indicating bluntly, a warning of a parity adjustment (reimbursement or payment reduction) of 11.3% or $3.94 billion. In typical convoluted CMS fashion, the logic behind this foreboding news is scattered; an analysis of the agency’s inability to adequately anticipate provider behavior, utilization patterns, and to appropriately create a reimbursement mechanism that ties the cost of care required by current SNF patients with the costs and delivery systems necessary to provide the care.
Initially, the interpretation from many inside the industry was that CMS was overreacting, using only one-quarter’s worth of claims data to substantiate a “sky is falling” conclusion. More recently, six month’s worth of claims data became available and analysis proved the trend correct and even a shade worse or better stated, more prevalent than originally assumed. In short, the implementation of MDS 3.0 and RUGs IV missed the budget mark (budget or expenditure neutral) by $2.1 billion or 16%.
In the last week to ten days, the OIG (Office of Inspector General) for CMS stepped into the debate, stating its opinion that the overpayments must be stopped immediately. Interpreting the OIG’s qualification of “immediately”, the timeframe at issue is next fiscal year. In essence, the core of the problem continues to be the structural flaws within the RUGs system predominantly, that disproportionately pays more for rehabilitation therapy than for other primary care modalities. A major intent of CMS during the switch from RUGs III to IV was a reallocation of the incentives (higher payments) from therapy to other resident care requirements. Suffice to state, the methodology failed. Below is a simple illustration of how on a pure rate basis, the RUGs III to IV therapy categories compare.
| Table 1: Average Amount That Medicare Pays SNFs per Diem for Each Level of Therapy, FYs 2010 and 2011 | ||||
| Level of Therapy | Number of Therapy Minutes Provided During Assessment Period | Average per Diem Payment FY 2010 | Average per Diem Payment FY 2011 | Percentage Increase From FY 2010 toFY 2011 |
| Low | 45 to 149 | $288 | $430 | 49% |
| Medium | 150 to 324 | $369 | $488 | 32% |
| High | 325 to 499 | $364 | $532 | 46% |
| Very high | 500 to 719 | $418 | $594 | 42% |
| Ultra high | 720 or more | $528 | $699 | 32% |
| Source: OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011. See 74 Fed. Reg. 40288, 40298–40299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895 (Jul. 22, 2010). | ||||
Reviewed on-the-face, it is logical to see how CMS could miss the targeted expenditure mark by the margin it has, even in-spite of the “methodology” changes that occurred in the conversion from 2.0 to 3.0 and RUGs III to IV. Providers, being logical creatures of certain habits, moved accordingly to grab the payments at the highest attainable levels or in short, fulfilled the economic axiom of, “what gets rewarded (paid for) gets done”. The expectation on the part of CMS that utilization trends would fall-off from the higher paying therapy categories, necessitating a higher re-balanced rate to negate a revenue “shock” to the SNFs was poorly thought through.
Quickly reviewing “what” occurred to produce such a variance from assumption to actual is easy. Getting to the core takes a bit more thought and digging. In summary fashion; CMS assumed that by restructuring how therapy minutes were calculated for concurrent therapy (therapy provided to two individuals) from a two-equals one basis to an equal half, would reduce the ability of providers to meet the higher per minute category qualifications, necessitating more one to one therapy sessions (the previous concurrent therapy rules allowed providers to have two people in the same therapy session with the total session time allocated to both participants equally). Similarly, CMS assumed that ending the look-back provision to establish reference dates and care requirements would more accurately stage the resident’s acuity and care needs to the point of admission (or proximally forward from admission) to the SNF. Additional tightening of the extensive services qualifier rules would also, as assumed, reduce higher RUG scores and thus, payments. Of these changes and assumptions, only the look-back period changes combined with the changes in qualification for extensive services provided any material classification changes (lower payments) though such changes were far less in total dollars than the dollar increase CMS imputed on the corresponding RUGs III to RUGs IV therapy payments. Providers however, merely switched to the remaining “open ground”, providing more therapy on an individual basis and most noticeably, on a group basis. On a group basis, minutes are counted collectively, not split in equal parts among the participants – a provision CMS did not change from RUGs III to RUGs IV. While the modifications made to the extensive services qualifier and the look-back period provision did impact providers, CMS completely misunderstood the application and prevalence within the provider community of these two provisions under RUGs III and as played-out, found that providers could still code residents into higher payment groups/categories in spite of the changes.
To understand what might happen next, one needs to look at how this mess occurred. As I’ve typically found, the answer lies in both camps; providers and CMS. In my recent work, its clear that many providers don’t understand the transition from RUGs III to RUGs IV and as I have looked at “oodles” of Medicare claims, I dare say a large number are still frought with ”up-coding” and questionable therapy-minute counting practices. This is not to say that the whole of the industry has behaved in this fashion but arguably, and CMS understands this as do both major trade associations, providers have not totally changed their business models to reflect the changes in payment systems. One needs only to look at how claims trended under RUGs III and how they now are trending under RUGs IV. The trend is too consistent to support an assumption of SNFs; a) staffing substantially more therapy personnel to capture the minute requirements via individual treatment or, b) SNFs moved a sizable share of their Medicare case-load into group therapy. The latter, while I’m certain it has occurred on a broad basis as the OIG report suggests, is problematic from a care delivery perspective for a large range of diagnoses that truly require individual therapy sessions.
CMS continues to remain fundamentally inept at developing reimbursement systems that provide adequate payment for the care and services required by SNF residents. I have yet to see, across my 25 years in the industry, any period or any system devised by CMS that didn’t under-support or over-support, one type or category of patient versus others. It is also illogical that CMS cannot develop the audit tools and claims management infrastructure that both educates providers and pre-emptively kicks-back claims clearly evidencing up-coding. I am consistently amazed at “what” gets paid and for how long. In short, CMS is apparently willing to consistently miss the mark, make wholesale adjustments and reallocation of dollars, only to over-correct past inconsistencies while producing new ones. Such will not doubt occur with this latest blunder.
While I won’t claim to have a crystal ball in terms of forecasting “what happens” next, experience and ongoing dialogue with individuals on Capital Hill and within CMS gives me some decent insights. With debt ceiling/deficit reduction talks mired in politics, it is unlikely any substantial cuts to entitlement spending are forthcoming. Senate Democrats and the President are sufficiently dug-in on cutting Medicare spending by any measurable amount thus the target on this issue (Medicare SNF spending) has moved away from the current political fracas. The remaining Washington impetus for cutting SNF reimbursement resides within CMS. In spite of the OIG’s report, enacting cuts of the magnitude suggested is a political issue. CMS can propose all the spending cuts its desires but Congress has the final say. Rarely if ever, although given today’s climate an exception may be possible, has Congress sustained reimbursement cuts of this magnitude. Synthesized, my view of what happens next, based on what I know to date, is:
- Providers and their trade association are willing to capitulate to a modest adjustment in the therapy categories. This symbolic give-back will play well politically. Net of a market-basket/inflation update, cuts of 2% to 4% are possible in a “cut scenario”.
- In a scenario that involves no real cuts, rates will be flat. CMS will institute additional refinements and perhaps, even re-calibrate or fine tune payments by RUGs category, moving dollars within the RUGs system, without reducing payments. In this scenario, the attempt on the part of CMS to is to “patch the potholes” and let the system itself reduce payments via tightening the requirements and re-allocating dollars within the RUGs categories.
- A most probable scenario involves, as is typical, a bit of both. CMS will cut the therapy rates using some language about re-basing. At the same time, a series of corrections will be made regarding the counting of minutes for group therapy, assessment windows, etc. Overall, payments to SNFs across all RUGs IV categories will be flat or targeted as a reduction equaling 2-4%. The pull-back on the therapy RUGs rates could be as steep as 8% to 10%. Even at this level, the remaining rate will be higher than the former RUG III rate.
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.
MedPac Report to Congress: 2012 Recommendations
MedPac (Medicare Payment Advisory Commission) just released its March report to the Congress on Medicare program and rate recommendations for the FY 2012 (beginning October 1, 2011). The full report is available in PDF form on the Reports and Other Documents page on this site. Below I’ve provided a summary of the key recommendations contained in the report.
Important to note about this year’s report and the recommendations contained therein is the political context in which this report will be received. Congress has often been politically unmotivated to take MedPac’s recommendations fully to heart as the same often involves program and payment reform following a path of curtailed spending. As MedPac was officially created/established as part of the Balanced Budget Act of 1997, a critical element of its charge is to monitor payment adequacy in light of Medicare’s beneficiary’s access to care and the quality of care delivered. Most notably, MedPac has gradually evolved to an organization that advocates for more aggressive programmatic reforms combined with rate reduction and/or spending reduction. For routine readers of the annual payment reports (issued in March), the opening tone within the Executive Summary section has grown more pointed regarding Medicare’s solvency issues (lack of sustainability) and the Commission’s view of Medicare and the broader economic impact it has on the global U.S. economy. Today (presently) within a House that is demonstrably pushing spending reforms and reductions and an overall Congressional environment stuck in debate regarding fiscal reforms that include entitlement reform, MedPac’s report certainly will receive more review and deliberation than in other years. Similarly, health care is a front burner issue given the politics (anti-reform) that surround the recently passed PPACA, effectively producing a wholesale shift in political power in Washington. Wrap the Washington political issues with a moribund economy that hasn’t yet established its recovery footing, significant Medicaid deficits across the States, and local political wars focused on labor unions, contracts and unfunded and/or expensive benefit packages (including health care). Summarized: The ancient Chinese proverb applies, “It is better to be a dog in a peaceful time than to be a man in a chaotic period”.
Opening, MedPac provides a quick context for their recommendations noting that Medicare’s share of the total GDP is expected to rise from 3.5% to 5.5% by 2035. More important and a point too often missed by economists and analysts is that Medicare’s cost growth is not separate from the larger health care economy as it is directly linked to other cost drivers within the health care system that today, are rising far faster than GDP growth (especially given the current and recent pace of GDP growth). Overall, including the payroll tax funded Part A, Medicare consumes 18 percent of all income tax revenue. The CMS Office of the Actuary, taking into account the purported Medicare spending reductions contained in the PPACA (see my last post on the Unraveling of the PPACA for more on Medicare and the PPACA) forecast a slower rate of spending growth – 6% vs. 9% under current law. Critical to this assumption is the realization of spending reductions totaling $575 billion as well as a more stabilized, normative GDP growth pattern combined with historic levels of employment.
Key to this year’s payment recommendations (FY 2012) is MedPac’s philosophy and charge of balancing equitable payments that maintain or improve access, redistribute payments within a particular PPS sector to improve equity among providers and/or adjust for biases in patient selection and service (the term “cherry picking” applies), correct unusual patterns of utilization (over incentivizing) and to attempt to tie payments to quality outcomes and efficient practices (pay-for-performance). The report covers 10 PPS sectors of which, I follow and work within 6 primarily. As a result, I won’t summarize or comment on MedPac’s recommendations for hospital inpatient, hospital outpatient, ambulatory surgery centers, and outpatient dialysis. Readers with interest in these sectors can download the report from my site page titled “Reports and Other Documents”.
- Physicians and Other Health Professional Services: MedPac dances through this topic without adding any substantive input regarding physician fees, let alone any other allied health professions with fees tied to the physician fee schedule (outpatient therapy for example). Primarily the avoidance is due to the political “hot potato” that is the SGR (Sustainable Growth Rate) issue. Per MedPac’s analysis, overall beneficiary access to physician care is good, physicians continue to accept Medicare patients, service volume continues to grow, quality is stable, and payments for service run at 80% of the typical PPO payment for similar care (unchanged from last year). MedPac does note however that some regional problems in terms of access to primary care are present, attributable to moderately low levels of reimbursement (in some cases, half as much as payments to specialists) and the inherent flaws of the SGR. MedPac comments on the need to reform this reimbursement mechanism but offers no insight into what it may propose, merely that projected fee cuts of 25% in 2012 are untenable and as a result, MedPac will continue to work on developing alternative SGR approaches along with other formulaic options for the fee-schedule. Their overall rate recommendation is a 1% increase in fee-schedule service related payments.
- Skilled Nursing Facilities: Per MedPac, Medicare spent $26.4 bilion on SNF reimbursement in 2010 and per their analysis, the majority of indicators examined showed payment adequacy. Prefacing their rate recommendations, the reports notes that the average Medicare margin for a free-standing SNF was 18% in 2009. Specifically, MedPac notes that facilities with wider Medicare margins have aggregated more days into higher paying PPS groups, particularly rehab focused groups as opposed to the medically complex groups. Additionally, provider costs remained relatively stable while rate increases paced above cost inflation. Per MedPac, successful facilities have found ways to have costs well below industry averages, high quality and corresponding high Medicare margins. As a result of these conclusions, MedPac is recommending no rate adjustment for SNFs for 2012 while recommending continued categorical revisions within the PPS to move payment focus away from rehab to clinical care – more focused on patient care needs. Additionally, they are recommending quality of care modifiers, providing incentives for high quality providers and creating rate reductions (disincentives) for sub-standard quality such as “avoidable” re-hospitalization. As required under the PPACA, MedPac is also charged with reporting on Medicaid utilization. Interestingly, their comments are boiled down substantially, indicating that total Medicaid certified beds have decreased while utilization and spending has increased. They note that Medicaid margins are negative and fundamentally, that all non-Medicare margins are negative but total margins for the industry are positive.
- Home Health Services: As it has in prior reports, MedPac continues to advise that access is adequate (90% of beneficiaries live within a zip code containing a certified agency), the number of agencies continues to grow dominated by for-profit entities within a limited geography, the volume of episodes of care continue to increase (25% over the period 2002 to 2009), quality measures are fundamentally unchanged from previous years, and the major for-profit organizations have sufficient access to capital. As in the most recent prior year reports, MedPac notes that the PPS system continues to produce high margins for providers (17%), principally because payments exceed costs and growth in cost per episode remains below the assumptions used in the market basket update. Using these conclusions combined with a cautionary statement regarding discovered fraud in the industry, MedPac recommends that the Secretary be charged with re-basing home health rates over a two year period, starting in 2013 (October of 2012). Re-basing of rates would target a reduction in the therapy “incentive”, modulating more rate toward medical care while incorporating a revised case-mix system. Additionally, MedPac recommends the development of a cost-share for home health, thereby instituting a beneficiary payment for services. MedPac believes, like in other Medicare post-acute payments, that imposition of a cost-share will charge the beneficiary with more consumer awareness of the benefit and the utilization thereof. Finally, MedPac recommends that the Secretary charge the Office of Inspector General with enforcement responsibility in areas/regions where fraud has been evident, removing payments, reducing enrollment and de-certifying agencies engaged in fraudulent activity.
- Inpatient Rehab Facilities: Although a relatively small segment in the post-acute continuum ($6 billion), MedPac is recommending a zero percent increase in IRF rates. They conclude that access is adequate, quality as supported by improvement at discharge is stable to improving, and as most facilities are hospital based, access to capital is not an issue. They note that the average margin for IRFs is 8.4%.
- Long-term Care Hospitals (LTACH): As with IRFs, this segment is relatively small – $4.9 billion. MedPac notes that in spite of the limited moratorium placed on new LTACH and additional beds in existing facilities (July 07 to December 2012), the number of facilities increased by 6.6%; worked through the exceptions provided within the moratorium. LTACHs are not required to submit quality data to CMS though MedPac reports, based on claim reviews, that readmissions and deaths within 30 days of discharge are stable or marginally declining compared to prior years. Per MedPac, payments between 2008 and 2009 increased 6.4% despite costs increases of 2%. The average Medicare margin in 2009 was 5.7%. Within the PPACA, LTACHs are subject by 2014 to a pay-for-reporting program, though “reporting of what” is yet defined. MedPac also believes that a pay-for-performance element should be introduced. The recommendation for a rate increase or update for 2012 is zero.
- Hospice: Per MedPac, hospice services received $12 billion in Medicare reimbursement 2009. In the same year, hospice use increased across virtually all demographic areas and across beneficiary characteristics. Between 2000 and 2009, the supply of hospices increased by 50% with for-profit organizations accounting for virtually the entire amount of growth. During the same period (2000-2009), the use of hospice increased from 23% of all decedents to 42% of all decedents with average length of stay increasing from 54 days to 86 days. In 2012, CMS is required to publish quality measures and in 2014, hospices are required to report on these quality measures or receive a 2 percentage point reduction in payment. For 2012, MedPac recommends a 1% rate update. As in previous reports, MedPac recommends that the hospice PPS be altered to create higher payments for days early in the stay and late (near death) in the stay with lower payments applicable during the middle of the stay. As stays continue to move slightly longer, this payment system is supposed to reflect more accurately, the intensity and cost of services provided to the typical hospice patient. MedPac also recommends that the Secretary of HHS investigate the relationships between hospices and nursing homes and the differences in patterns of referrals between nursing homes and hospices. MedPac also calls for an investigation into agency enrollment practices where lengths of stay are unusually long as well as an investigation into the marketing and referral development practices of these agencies, particularly as they pertain to length of stay. This recommendation is unchanged from last year.
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.
Hospices Looking for Census Improvements: Add Some Innovations
Most hospices I talk with are finding census gains difficult these days. As I’ve written before, a number of factors are conspiring at the moment to keep census somewhat depressed and referrals tough to come by.
- With a struggling economy, all providers are looking for paying patient days. Referrals that should (or would) routinely go to hospice aren’t as readily available as upstream referral sources (hospitals, skilled facilities, etc.) don’t have the depth of other paying patient pools. In fact, all downstream providers are seeing compressed referrals. Simply put: When the queue of paying patients is smaller due to a fall-off of privately insured patients (due primarily to high unemployment), any paying patient including those that would be or should be hospice referred is better than a vacant bed. There simply are not enough patients with good payment sources for all of the supply of providers today.
- Hospice is a mature market or one that is stable and growing only very modestly. Despite the fact that it is cost-effective, arguably more appropriate and better for a terminal or near-terminal patient, it hasn’t permeated the traditional patient, familial and medical community psyche to a sufficient depth to create additional demand. Culturally, the medical community and patients still prefer to pursue curative options at virtually every step of the way as opposed to accepting death as a natural course of occurence.
- The financial incentives favor the pursuit of more expensive care as opposed to hospice. Payment in our system is highest and most fluid for acute, episodic, technologically based care and treatment. A simple economic axiom applies: What gets rewarded gets done (or, follow the money).
Taking the above into account, one would tend to think that generating additional referrals is an improbable task. While I won’t propose that doing so is easy, there are some options in terms of “innovation” that make sense. By innovation I mean programmatic changes or new programs that tap non-traditional markets or fractional markets. Being honest, simply marketing more or trying desperately to educate a few more patients and/or a few more physicians about the benefits of hospice care won’t create many additional referrals (again, see the top bullets for “why”).
Here are some favorites that I have seen tested in other settings, some within hospice programs, and/or other countries. Each is innovative and worthy of exploration by a hospice organization that is looking to create some novel niches, incremental referrals and brand differentiation.
- Day Hospice: A variation on adult-day care, this program provides a respite style of program but for caregivers to take a few hour break. Transportation, meals, socialization, etc. plus spiritual and other counseling typically round-out the services and where “cares” are involved, staff assist the patient as required. A hospice could start such a program either via a partnership with an existing adult day care provider, SNF, Assisted Living, Hospital or on its own in a suitable location.
- Disease Specific Programs: Develop end-of-life algorithms and care management programs for specific diseases such as ALS, MS, Parkinson’s, COPD, etc. Enlist physician specialists to provide review and consultation in the program development phase and even in a supporting medical director capacity. Consult with the local chapters of groups/associations that represent each disease (Parkinson’s Association, MS, etc.). The result of this approach is a three-fold win for the hospice. First, a segregated category of potential new patients. Second, a branding opportunity and co-marketing strategy through the physician specialists and the local disease representatives. Third, a focused opportunity to educate patients and physicians on when, why and how to make a hospice referral – these folks become a “warm” group.
- Embrace Alternative Therapies: Some organizations do this better than others but few do the compendium and certainly not as well as organizations in foreign countries (the Dutch are the best). Here’s a few of the better concepts that I have run across.
- Medicinal Marijuana: Now legal in 14 states and DC, medical marijuana is viewed as a wonder drug for symptom management, especially by cancer patients and patients with intolerable spasms (MS, Parkinson’s, etc.). Embracing this option where legal and perhaps, even becoming a distributor creates a “cutting-edge” brand and a marketing advantage.
- Acupuncture: For use either as a stand-alone symptom management aid or for adjunct therapy to deal with pain, nausea, spasms, headaches, etc. Bringing on staff, a certified acupuncturist is again, a cutting-edge option and one that is marketable.
- Mood Rooms: For inpatient programs, rooms developed with particular design elements have proven to be successful in easing patient’s symptoms and creating a more relaxed and tranquil environment. Hospitals have started to embrace this level of design and there is no reason that hospices don’t do the same. Everything from lighting to color to sound systems and views are designed to improve tranquility, comfort, and patient “mood”.
- Others: Massage therapy, music therapy, hydrotherapy, meditation, etc., are all fair game and in one form of another, have legitimate bases for use in a hospice setting.
- Increase the Technical Capabilities: Being more capable in terms of taking certain types of complex patients is always a cost-benefit issue although, done correctly, the return is still positive “financially”. Patients that often don’t benefit from hospice (due to cost issues) include ventilator patients, patients that require palliative radiation or palliative chemo-therapy, and patients that require specialty DME. In reality, the scope of each under a terminal diagnosis is limited and with solid advanced planning. good partnerships with other providers, and effective cost management, it is possible to tackle these patients and still achieve a modest margin. Don’t be automatically afraid or unwilling to accept patients in unusual circumstances and actually, increase your technical competence in dealing with these patients. They are an untapped market in many regards.
- Private Duty: For a hospice that is part of a home-care organization and/or can partner with such an entity, private duty hospice can be very profitable and very successful, albeit on a limited scale and honestly, only in certain market areas. There remains a class of people that are terminally ill, hospice eligible and in-need (and desirous) of extended caregiver or private-duty support at home. Targeting this market is as easy as developing good relationships with trust company officers, estate planning attorneys, and other trusted counselors to the “well-off”. One word of caution persists, however. This group is picky so to sustain the business, a hospice must be very customer service focused.
- Be Palliative, Not Just Hospice: For those hospices affiliated with home care agencies or, can build a relationship with a non-competing agency, offering expertise to patients that require symptom management and palliative services only makes sense, even if the same patients aren’t yet hospice appropriate or won’t at this point, consciously elect a hospice benefit. Expertise in symptom management and the palliation of chronic diseases is the strength (or should be) of all hospices and leveraging this strength to “marginal” hospice patients builds a bridge for the hopefully, inevitable referral. If nothing else, this business is incremental revenue.
As I indicated, the above is just a sample of my favorites from sources where successes have occurred. I encourage readers to add others, different ideas or to elaborate on perhaps, a twist or two to the above. Feel free to post your comments and experiences so that I (and you) can share our “collective” knowledge.
Compliance, the Courts and a Risk Reminder
In previous posts I’ve written about the need for providers in all industry sectors to fully understand the compliance and legal risks that are inherent to the appropriate industry sector, as well as to health care today in general. As someone who has been immersed in health care operations and health policy for the past quarter century, I can honestly say that I have not seen a period more perilous for providers and quite frankly, I perceive that it will remain risky and perhaps escalate in the near future. Consider the following;
- There is renewed vigor and funding in Washington to root out perceived waste and fraud, principally focused on Medicare. Every sector that I follow is a target for the OIG and/or Recovery Audit activity. In spite of GAO findings that Recovery Audits have fallen short of achieving their targeted goal of reducing $231 million in over-payments or improper payments, the action from CMS is to “improve” the system or in other words, increase the amount of personnel and resources devoted to this task. In July, the Department of Justice announced the results of a multistate Medicare fraud investigation implicating 90 individuals, tied to a total of $251 million in Medicare payments. The investigation involved doctors, nurses, therapy companies and others. The investigation was part of the new Health Care Fraud Prevention and Enforcement Action Team.
- According to a recent report from the Congressional Research Service the number of new agencies, commissions and boards created under the recently passed Health Care Reform law is “unknowable”. The Center for Health Transformation headed by former speaker Newt Gingrich estimates that 159 new agencies, offices and programs were created under the PPACA and the Joint Economic Committee claims 47 new bureaucratic entities were created. What this all means in brief is “more regulation”, not less and in most cases, regulations that haven’t even been written yet. Most troubling is that the PPACA seemingly creates bundles upon bundles of additional regulation but is virtually moot on any current regulatory relief or reform. Two interesting charts regarding the bureaucracies created under the PPACA are available at http://www.healthtransformation.net/
- Existing regulatory burdens are already steep and increasing, regardless of the PPACA. Take for example, the annual CMS rule making process regarding rates and payments. Wholesale changes in Medicare assessment requirements and payments are forthcoming this fall for the SNF industry. The home health industry has also seen its share of Medicare reimbursement changes and required assessment and documentation changes under Medicare imposed by CMS without any legislative activity. New HIPAA requirements regarding electronic communications came into play this year, new self-disclosure rules under Stark and the False Claims Act, as well as dozens of other agency regulations.
- Non-health care specific laws also change constantly and impact providers. Whether these laws are labor related, tax related, state laws, local laws, commerce laws, building codes, etc., all are in some way related to the general business conducted by providers.
- The court system (or more appropriately, the plaintiff’s bar) has become more actively focused on the provider side of the health care industry. In just the first seven months of this year, two significant class-action suits have laid new fertile ground that providers should both fear and understand. The first occurred in California where a jury awarded plaintiffs $613 million in statutory damages and $58 million in restitutionary damages (punitive damages not yet determined) against Skilled Healthcare Group, a proprietary nursing home chain. The award was predicated on a 4 year old complaint that the organization failed to staff its facilities to meet the State of California’s minimum staffing requirement of 3.2 nursing hours per patient day at 22 of its California facilities. The ”rub” in this case for providers is that no harm or actual damage theory was applied to the “class of patients” affected or in other words, the residents of the 22 facilities were never effectively damaged in total yet, the jury awarded the maximum damages allowed under California law. The result is that, even before punitive damages are assessed, the damage amount is larger than the value of the organization or more simply, if the damage amounts remain unaltered, Skilled Healthcare is bankrupt. A final piece of irony? The regulatory system that oversees nursing homes in the state took no specific action against Skilled Healthcare to prevent the “understaffing”. The second case comes from the home health industry where as of today, three class action suits have been filed against Amedysis, the industry’s largest proprietary home health company. The suits were born as a result of a Wall Street Journal article and a subsequent Senate Finance Committee inquiry into the Medicare billing practices of large, for-profit home health companies. The fundamental allegation is that Amedysis, along with other major for-profit companies, used the Medicare rules in-place to essentially increase their revenues. The fundamental issue pertains to therapy visits and a provision under Medicare two plus years ago that provided for incentive payments to be made to agencies based on the number of therapy visits (more visits, higher payments). The basis of the suit against Amedysis (clearly a target because of its size, its focus on Medicare patients and the Wall Street Journal article) is that the company overstated its revenues and once investigated or discovered, the same activity now disclosed caused shareholders to lose value as a result of falling stock prices. In a unique twist, the suits use Sarbanes-Oxley, a securities related law that requires senior corporate officers to avoid activity that would result in unethical conduct or malfeasance, harming shareholders. As in the Skilled Healthcare case, the irony here is thick. First, there is no allegation that patients were harmed or that care was rendered inappropriately. Second, the activity of Amedysis was not under investigation by CMS or the OIG concurrent to or before the filing of the suits. In other words, the government’s own enforcement activity was moot on this issue and there is considerable question as to whether what Amedysis did was even improper given the rules that were in effect at the time. Third, virtually all providers practice Medicare maximization or that time-honored practice of using Medicare’s own rules concerning reimbursements to maximize the amount of reimbursement available to them. If the Amedysis case is the standard, virtually every Medicare provider would in fact, be guilty of similar conduct dependent on the industry and the applicable reimbursement rules.
Taking the above into account, and it is truly an overview only, providers need to recognize the gravitas of the environment and the totality of legal and compliance risks that are present and mounting. Recognition and identification of the compliance requirements per applicable industry sector and the legal risks associated with the business and operations encompassed is where providers can begin to respond, not react, and develop the tools, processes, plans and ultimately culture, that mitigates risk and creates effectively compliant operations (“effectively” because totally compliant is improbable if not impossible). Below are some time-honored tips and approaches for creating an organizational environment that achieves high-levels of compliance and mitigates legal risks (I ran a very large, multi-site, complex organization for twenty plus years and never had a lawsuit).
- Within each industry sector there are tons of regulations that in theory, require daily compliance. Likewise, within each industry sector, there are compliance themes and “key” compliance requirements. Focus on the key compliance requirements as activities, tools, and systems that drive compliance in these areas mitigates 90 plus percent of the compliance risk and in all cases, the risk that is expensive and serious. I like to think about the core intent of compliance and create understanding and organizational capacity and systems around these intents. For example, in the areas of patient care, outcomes are the baseline of regulations. Regulations focus on documentation of outcomes, prevention of negative outcomes, and actual standards for outcomes. Systems which assure a close match with the regulatory expectations and are part of an organizational QI process (constantly) achieve the regulatory intent and create a “halo” of compliance. The same can be said for billing practices under Medicare and Medicaid, privacy requirements under HIPAA, etc. Polices are insufficient to achieve the requisite level of compliance required and quite often, do nothing more if not integrated within organizational practices and systems, than create more compliance risk.
- Legal risks are harder to quantify but in some cases, easier to generally address. Take the two legal cases I illustrated above. In the first case, if the staffing requirement in a state is 3.2 hours per patient day, any provider flirting with these levels consistently is asking for trouble – avoid the risk entirely. In the second case, as I pointed out, Medicare maximization is a time-honored tradition for providers. What is not time-honored or allowable, is any activity that suggests that the provider is routinely and consistently, seeking to “game” the system. I see too many therapy companies and SNF providers that merely “up-code” all residents into Ultra High therapy categories as a means of achieving the highest Medicare reimbursement per day. I see too many providers stress the justifications for additional days, manipulate the rules to extract additional benefit periods, and create care requirements and documentation that is not supported by the actual needs or conditions of the patient. These activities, when pervasive and constant, create a legal risk that is tough to impossible to defend. A better approach is to develop strategic and operational plans that maximize revenue the right way. The right way is by achieving high-levels of organizational capability in delivering the right care to the right patient at the most efficient cost levels possible. It also means developing marketing plans and programs that attract the ideal patient mix that produces the highest possible revenue profile for the organization. With respect to employment, avoiding significant legal risks means dealing with employees within the constructs of employment law. This doesn’t mean don’t fire or don’t discipline. It means fire and discipline effectively and only for consistent, documented and legally permissible activity. A core or key requirement is to effectively train and only employ, capable and competent management that know and understand the applicable labor laws and are capable of using effective hiring and supervision methods that produce organizational results without violating company policy or the law.
- Organizationally, the primary methodology to achieving a high level of compliance and to mitigate legal risks involves creating an organizational culture that focuses on compliant activity and solid risk management principles. While not exhaustive, here are some key elements that are part of the culture.
- Internal and external education and audits that identify risks and provide solutions. Developing organizational thought-leaders and subject matter experts provides key resources that can be deployed to solve problems, identify risks, and provide education.
- Encourage reporting and self-disclosure and reward the activity. Management must be open to hearing “what is not right” and providing reinforcement for this activity.
- Integrate compliance and risk management as part of strategic planning and allocate budgetary resources adequate to address the risks. While risk prevention always appears to be money with another use, it is far cheaper to prevent compliance and legal risks than it is to bear the costs after an event has occurred.
- Reward the concept and ideology of “doing the right things” first as opposed to those things which may be short-term, expedient or more profitable.
- Benchmark and test key indicators constantly. For example, if your Medicare census and revenue per day is higher than industry norms and/or market norms, make sure that such results are tied directly to organizational performance and activity, not to billing creativity.
- Provide ownership to compliance activities and outcomes to all staff, not just management. Engage the entirety of the workforce.
- Keep up with pending or new regulatory activity and legal activity and get “ahead” of the curve. Organizations that only respond to laws already passed and cases already decided tend to get caught trying to “react” rather than remain vigilant and prepared. Rarely do new compliance requirements and legal requirements come instantaneously on the radar screen – they have been there for a while. Providers that see and understand the trends can use the virtue of time to integrate new systems into existing systems, teach new knowledge requirements, and build new organizational capacity to manage effectively, the new requirements.
As the Home Health and Hospice World Turns: Part II
In Part I, I wrote about my last week’s conversations, etc. regarding the home health industry, specifically Amedysis, the Senate Finance Committee inquiry, the industry impact via the PPACA and the likely consolidation and merger trends that are approaching. Suffice to say, not all of last week’s news and conversations focused on the home health industry as over the last thirty days, much has happened in the hospice industry as well. The difference between the two industries is that in hospice, the major news involved a significant merger and in home health, the major news involved the legal and compliance issues of the largest provider entity – Amedysis.
The hospice industry saw, via the merger between Gentiva and Odyssey, the creation of the largest home hospice company in the industry. Gentiva, while also a provider of home health, clearly chose to direct more of its attention to the hospice industry, moving from a moderate player in the industry to the predominant player via the acquisition of Odyssey. Odyssey, while not as large as Vitas (the former largest hospice provider), held substantial market share and presence and in many regions and distinct market areas, competed head to head with Vitas for patients. For more information on the Gentiva/Odyssey transaction, see a related article in my company’s E-Newsletter at http://wp.me/pD9Ac-4Q .
Analyzing this merger leads me to a series of assumptions about where the hospice industry is at present and where it is likely headed.
- Hospice is now clearly a mature market or in other words, a market that is unlikely to grow significantly over the near to intermediate term horizon. Despite a fairly profound demographic shift occurring over the next twenty to thirty years (the maturation of the baby-boomers), there is no real indication even with this influx of older adults, that hospice as model of care, will gain in referral popularity. While seniors utilize hospice more in total numbers than any other age cohort, as a percentage of the total cohort, utilization trends show little forward growth. There are a number of reasons why;
- Culturally, U.S. medicine and the U.S. population still values the process of cure or health restoration far greater than the concept of natural death. As hospice is a downstream referral (the referral comes typically from non-palliative medicine trained physicians or via hospitals and/or long-term care providers), the hospice industry relies on the referral source to be; a) knowledgeable about the value of hospice and how it works for patients and their families, b) willing to forego potential incremental revenue for continued care by making the referral to a hospice, c) willing to engage the patient and the family in a difficult conversation regarding end-of-life and treatment futility. As long as these dynamics remain in place to the extent they presently are, the growth of utilization will remain fairly stagnant.
- Financially, the incentives for referrals to hospice don’t truly exist within the current U.S. system. There are no barriers in-place to reduce the reward (payment) for continued acute, diagnostic or curative care (choose your own verbiage) and as a matter of fact, the reimbursement systems (private and public) pay incrementally more for more intense care than palliative care, even if arguably, the care is futile. As only patients and their respective treating health professionals can conclude that continued curative care is futile or unreasonable, the process of garnering more money for more treatment remains intact as a perverse incentive.
- While not for hospice people or physicians trained in palliative medicine, terminality remains an uncomfortable and even disputed condition for many physicians. Patients and there families still wish to avoid discussions far too long and in some cases, avoid the discussion altogether. While in-roads are perhaps being made in some medical centers and in certain communities, these in-roads are miniscule and not evident of a ground-swell movement toward open discussions regarding end-of-life decisions.
- As with the home health industry, the movement in Washington is toward curtailing the growth of hospice spending. The prevailing feeling in Washington policy arenas, supported by Medpac, is that the hospice reimbursement under Medicare is too generous and the benefit itself, easily manipulated and poorly defined. While the PPACA did little to negatively impact the hospice benefit or payment, the recommendations directed to the Secretary of HHS in the language intones significant changes forthcoming.
- Reimbursement under Medicare will change such that early days in the initial benefit period will be paid more as will days at the end of the patient’s stay (proximal to death). Days during the interim, longer stays will be reimbursed with lower payments. The point here is supposedly a recognition that patients with long stays have periods of stability necessitating far less care from the hospice.
- More emphasis will be placed on denying stays for non-specific terminal conditions or denying portions of stays. CMS has determined that too many longer stays are related to diagnoses such as terminal dementia, failure to thrive, etc. In order for these stays to be covered, the onus will fall on the hospice to provide very detailed documentation supporting patient decline.
- More emphasis will be placed on physicians to document terminal conditions and to prognosticate length of likely survival, especially at recertification periods. More direct “hands-on” involvement of physicians will also be required (physically seeing the patient).
- Certain types of stays and relationships between hospices and nursing homes will be closely monitored and reviewed. CMS and Medpac have determined that hospice stays in nursing home environments on behalf of nursing home patients are considerably longer and possibly in many cases, in violation (the hospice) of the conditions of participation as hospices utilize nursing home residents as sources of revenue but often, fail to meet the care requirements (using the nursing home as the source of care and service) under the hospice federal code. Additionally, CMS and Medpac have placed the target for reform squarely on the large for-profit hospices such as Vitas, Gentiva and Odyssey which have typically used nursing homes as major sources of referrals for hospice patients.
- The PPACA, while not bending the cost curve or reducing the overall level of national expenditures on health care, does change in the interim, the overall health care economy. Providers are re-positioning and re-grouping to combat what they perceive, and in some cases know, will be negative changes to how they presently do business. Providers which rely heaviest on Medicare as the bulk of their overall revenues will move the fastest and the most aggressively to alter their current business practices, knowing that regardless of the overall status of the PPACA (repeal, restore Medicare cuts, etc.), the health care economy is entering a long period of fiscal constraint – payments will never be as high or as fluid as they once were.
- Because of points 1, 2 and 3 above, the industry will head into a period of consolidation and even, contraction. The Gentiva/Odyssey merger is a signal of the maturity of the industry and the trend toward tighter regulation of hospice stays under Medicare (the bulk of the hospice revenue) and less economic value per each stay. Lower future revenues per stay, either via reimbursement cuts or regulatory constraints placed on the length of stay, means more overall stays are required to equal the same or greater revenues going forward. As the growth curve of new “potential” referrals is flat, the only real source of new business or referrals for a provider is acquisition of existing market share (buying someone else’s referrals). In order to maximize profitability in an environment where the market is mature and the total revenue per each case is flat to shrinking, providers will have to adopt one of the three strategies below.
- Acquire other providers to build more referrals or volume. While each patient stay will be economically less valuable, increasing the total number for a provider while maintaining expenses on a ratio basis, lower than revenue, will provide a method to achieving overall net income targets - critical for publicly traded provider organizations.
- Shrink the organization to fit the new revenue and length of stay realities that are in place and forthcoming. An organization that can right-size its operations to fit the new business paradigm will be smaller but potentially equally or perhaps, more profitable. The risk here is that provider organizations that are acquiring market share may marginalize some markets such that a shrinking provider (by choice) loses desirable market share.
- Expand non-Medicare business and add complementary businesses that may provide incrementally equal or more revenue than that which is lost under Medicare. Arguably, this strategy may only work for regional or single market providers and those that have strong system ties (hospital owned, etc.).
One final point to note concerns the economy. Absent from the above factors I laid out influencing the hospice industry is the stagnant economy. With recovery a daily discussion regarding likelihood and timing, current uncertainties persist that impact hospice providers rather dramatically.
- The overall number of paying patients available to all providers within the health care economy has shrunk in recent years. This shrinkage is primarily due to job losses and benefit losses. Until employment rebounds and jobs with benefits become more plentiful, consumers for health care in the form of paying patients will remain down.
- When fewer paying patients are in the queue, those patients that do have a payer source, even a less than optimal government payer source, are prized commodities. Each provider wants a piece of the same paying patient.
- Hospice is as I pointed out, a downstream referral. When the upstream referral source, principally hospitals, lacks sufficient paying patients in the queue to replace current patients it “may” customarily refer downstream, it holds the paying patient longer, either delaying the referral and the portion of revenue that comes with a longer stay or avoiding the referral all-together. Similarly, all downstream referral sources such as nursing homes compete aggressively for the referrals even though a referral of a terminal patient (or potentially terminal patient) is ordinarily, not a prize catch for most nursing homes. This competition erodes the number of total possible referrals available to a hospice.
- Each patient has an economic value to a provider. When a patient with a higher economic value (a better payer source) are lacking, providers sort down to the next patient level. This sorting process occurs as a result of too few patients with payment sources available to match the supply or capacity within the existing provider universe. Some markets hit hardest by the downturn will evidence this reality in greater depth and unfortunately, with greater persistency. For hospices (and all downstream providers) in these heaviest hit markets, referrals have trended down and will stay down until the supply of patients with payment sources increases and specifically, the supply of patients with better payment sources and today, deferred health care needs (e.g., elective surgeries such as joint replacements, etc.).
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