Medicare SNF Rate Outlook
Literally fresh off of a significant rate adjustment/reduction in October (2011), Medpac (the Medicare Payment Advisory Commission) releases a recommendation for complete SNF payment overhaul. In their assessment of the SNF payment system under Medicare, Medpac concludes the following;
- Medicare payments to SNFs represent 23% of all revenues. Medicare (payer) as a share of SNF patient days averages 12%.
- Provider supply and occupancy rates remain essentially flat year-over-year (2009-2010).
- Quality as determined through survey and other indicators remains unchanged.
- Average Medicare margin is 18.5%. The average margin for for-profit SNFs is 20.7% and for non-profits, 9.5%.
The crux of the Medpac argument is that efficient providers have lower costs (about 10%) and higher quality as evidenced by higher rates of community discharges (38% higher) and lower rates of rehospitalizations (17% lower). Accordingly, Medpac believes that the current system, inclusive of recent adjustments to rates (October) is set to produce the same level of behavior and outcomes, plus account for a 14.6% average margin in 2012. The argument put forth by Medpac is that the Medicare SNF system must be re-based, principally due to the fact that margins have run consistently above 10% since 2000 and the correlation between margins and patient case-mix is non-existent. In summary, the Medpac recommendation, which will head to Congress in the upcoming months, is to revise the PPS system now and begin rebasing rates in 2014, in phases. In addition, Medpac is calling for a rehospitalization impact (negative) to rates for poor performing SNFs.
Ordinarily, Medpac recommendations such as this have more of a “frame the argument” impact than a real implementation objective. Congress has been reluctant to take steps this drastic to any Medicare provider group for fear of industry fall-out and political damage. Yet, as we have seen with the home health industry, greater movement is possible where rate cuts are concerned, particularly if the general tone is that the industry is too profitable and said profit is coming from gaming the system. Double digit margins seem to get even Congressional types’ attention.
Looking at the industry, how the rate reductions in 2011 transpired, the initial report/recommendations from Medpac, and the current public policy environment in Washington, my near term rate outlook for SNFs is as follows.
- All the evidence suggests PPS refinement is forthcoming. The system simply isn’t working adequately in terms of tying payment rates to care costs and rewarding quality. The “behavior” effect that CMS is looking for, namely a movement away from “rate ramping” focused on rehab case-mixes to rate equalization focused on a balanced book of Medicare patients (balanced case-mix) isn’t happening and apparently, isn’t properly incented in the current system.
- Rebasing isn’t far-fetched but it is aways off. CMS is prone to be exceptionally slow at devising payment systems and of course, equally inept at getting the infrastructure to work properly. If as I believe, the first step is PPS refinement, given the likely horizon of implementation, rebasing is farther away; certainly farther than 2014.
- There is no question that payments will become tied to certain quality indicators, especially rehospitalizations. This trend is foretold in the PPACA (Reform) and regardless of the law’s future (life or death or limbo), the payment tied to quality trend is here to stay.
- Politically, the will to champion what will be viewed as over-payments is far less than the will to find ways to rein in excess (or perceived excess). All this means, regardless of the upcoming political cycle and elections, is that lobbying for a system that continues to produce average margins north of 14% will fall on principally deaf ears on the Hill.
- Rates are trending down and I suspect another round of flat to modest decreases in rates forthcoming in October. The push will be system revision as opposed to just rate reductions, feeling that the best approach is to revamp the existing PPS and in so doing, create lower spending overall.
- Time tested arguments against cuts that won’t work or have run their course are as follows;
- Medicare margins are necessary to offset Medicaid losses. This one is good on its face but in reality, its tough to make the case for margins that have run in the 20% range and earnings that have been solid among the for-profit companies. The publicly traded guys need to show pain (in the form of earnings) before Congress will relent on the lack of merit for this argument (publicly traded SNFs tend to have higher MA census and higher Medicare census).
- Access will become an issue and facilities will close. Per Medpac and most industry observers, the supply today is adequate and slightly surplus so some continued shrinkage isn’t a big concern.
- Job losses will certainly occur. The latest cuts from October don’t support this argument by any magnitude. Additionally, the overall health care industry is growing so worker displacement isn’t really a grave concern – movement is easy between providers in most markets.
- Capital will be even more difficult to access with future negative rate outlooks. Again, this is a decent argument but in reality, capital access is provider specific and CMS and policy makers realize that well run, profitable providers will continue to have access to capital, even if the industry outlook is negative. A better argument is that negative industry outlooks make capital marginally more expensive and the number of outlets fewer. This is true only in the short-run however.
So in conclusion, here’s the take-away: Medicare rates are headed down in the near term and in the intermediate term. It is a virtual certainty that the present PPS system will be revised over the next three to five years. The future of the PPACA will impact this process as elements of reform shift the landscape for all providers. The debt discussions in Washington will have literally no direct impact on the future of Medicare SNF payments; the industry share of the overall spending pie is negligible enough to not be overly impacted by automatic cuts in federal spending. The future is one where providers must learn to balance their overall Medicare book/case-mix and focus on quality. Quality incentives/penalties are a certainty and there is no longer any room left to ignore outcomes such as discharges and rehospitalizations. Likewise, I believe bundled payments are forthcoming and the further development of ACOs will continue to shift SNFs to align their care and product/service offerings toward outcome oriented, bundled payments. Medicare as a payer source will remain profitable for many SNFs although not at the same margin levels seen over the past decade. Profitability ranges will trend into the high single digits or perhaps slightly more but only for providers with a well-balanced case-mix. As always however, the key to making money in this declining reimbursement environment stems from solid management, a well-balanced payer mix, and an operating infrastructure that is aligned with the incentives remaining in the industry.
Medicare Fraud and Why; Part II
Last week I published a post regarding Medicare fraud that is occurring in the post-acute industry. The post is available at http://wp.me/ptUlY-ak . At the end, I indicated that I would provide a follow-up post; a closer piece more succinct on why the fraud trend is heating up and what the drivers for this trend are. In short, while the two posts (this one and the one from last week) can stand-alone, readers with interest in this topic are advised to read both.
In the previous post, I indicated that Medicare in and of itself is an instigator of some of the recent fraud activity. The very nature of the program, how it pays, what it pays for and how its claim adjudication processes and benefit structures are configured establishes an environment that is a veritable Petri dish for providers looking to “game the system”. By design, Medicare itself is uniquely flawed as it creates an incentive environment for ramping-up procedures, utilization and acuity thus leaving wide interpretive room retrospectively about the necessity of the care provided to any one or any group of patients. Similarly, as the predominant payment methodology under Medicare is prospective, not based on a series of medical necessity tests, any third-party utilization review administered by qualified individuals will invariably find payments made for procedures, care, diagnostics, medications, et.al., that proved, knowing the final outcome of the care provided to a patient or group of patients, to be unnecessary or perhaps, greater in amount than what was truly required. The assessment tools and tools of predetermination of need or necessity that drive prospective payments under Medicare, while lengthy, bureaucratic and ill-defined, rely extensively on human judgement and input that is subjective in many regards. The playing field thus is truly wide-open and when combined with the implied incentive that more achieves higher payment, a clear or even abstract environment is present for fraud.
Behind the process of payment and the benefit administration elements of Medicare lies a whole series of laws and agency administrative codes that seek to define what is fraudulent behavior where Medicare is concerned. Truly, this body of work is the purview of lawyers. In my years of travel throughout the healthcare industry, rare do I encounter folks at the operations levels, administrative levels, clinical levels or financial levels of healthcare organizations that completely grasp the depth and nuances of these laws. In fact, because the topic and information is arcane and uniquely legal, I often encounter multiple consultants and even lawyers, that don’t understand it. Frankly, I have spent time with consultants from large, well established practices whose content knowledge in this subject area is poor to non-existent and thus, outright wrong.
Taking the foregoing and placing it into an evolving conclusion, the puzzle starts to become clearer as to why “fraud” is spreading as rapidly as it is. First, Medicare itself begets a certain level of activity that is specious. Second, the laws that define fraud are convoluted and constantly evolving. Third, the people at the organization level rarely understand the laws and to be honest, their jobs are not charged with “knowing” the depths of what Medicare and its associated agencies, consider as fraud. Finally, all too many third parties that organizations rely on routinely for expertise are no more versed in compliance and the fraud laws than the organizations themselves.
In its most simplified form (lawyers please hold the laughs as my role is to employ wherever possible the KISS principle), fraud under Medicare can be boiled down as follows.
- Anti-Kickback: Forbids any individual or organization that is involved in the provision of care reimbursed or covered under Medicare or Medicaid from receiving a financial incentive or inducement associated with a referral, the provision of service, utilization or marketing of a service. The Anti-Kickback provision has been broadly employed to cover contractors, lease arrangements, referral arrangements, purchasing arrangements, etc. A growing and today, somewhat common use of the Anti-Kickback laws are the relationships between SNFs and Hospices, vendor relationships with SNFs, pharmaceutical and equipment suppliers, provider organizations, and lease arrangements between Medicare providers. Most interesting to note is the after-practice or after-violation OIG activity where Anti-Kickback language arises following a Whistleblower action of some form. In short, I am seeing more activity here not as a de novo action started by CMS but following after, a Qui Tam suit. Because of the breadth of activity that falls under Anti-Kickback, it isn’t surprising that this area is the most misunderstood by providers. For example, I routinely see situations where SNFs enter into or seek, agreements with diagnostic providers (radiology, laboratory, etc.) for fee levels below Medicare fee-screens or allowable levels. Equally not surprising, I’ve watched this activity escalate concurrent with reimbursement cuts under Part A.
- False Claims Act: Defines as a violation, any activity where a person or organization, intentionally and/or knowingly, causes payment to be made or seeks to cause payment to me made under Medicare or Medicaid for care that is improperly provided, provided illegally, unneccessary, etc. Common applications or violations include upcoding, services not rendered, bundling or unbundling, services rendered illegally or unprofessional (not within a prescribed professional practice standard), phantom patients, kickbacks or inducements (see Anti-Kickback), and improper certifications or false certifications. In most recent periods, like application under Anti-Kickback laws, the False Claims Act violations of significant magnitude seem to arise from Qui Tam actions. Again, this areas of fraud is broadening rapidly as the methodology used by providers to create additional patient volume can and has run afoul of the False Claims Act (reference AseraCare’s most recent Qui Tam suit). This area is a literal mine field for many post-acute providers and rapidly becoming an extremely hot interest area within the Medicare Hospice arena and the SNF arena. What I see that is most disturbing for providers is their near complete failure to understand that a contract arrangement for services provided under Part A imputes False Claim Act liability to both parties. Case in point: SNFs and therapy contract agreements. Even though the therapy company may be completely at fault for upcoding therapy RUGs and thereby creating a scenario for violation under the False Claims Act, the SNF cannot escape the liability and culpability for the same violation under the Act as it is the Part A provider and the entity that generated the fraudulent claim to Medicare. I am seeing the same application of False Claim Act provisions in the relationships between SNFs and Hospices where both parties were overtly engaged in certifying a resident as terminal when no such terminal condition truly existed. In these situations, there is often dual application as the reimbursement crosses Medicare and Medicaid.
- Stark Laws (collective): Created and then adapted via a series of additional laws, Stark fundamentally covers physician self-referral for Medicare and Medicaid patients. At the core is a theme of separating physician interests where, given a physician’s ability to direct patient flow, ownership or financial benefit arising out of a referral is a prohibited activity. Stark governs ownership, investment and beneficial compensation arrangements between physicians and other Medicare and Medicaid providers. As is true with all Medicare/Medicaid fraud related laws, Stark is complicated. The law is loaded with nuances that arose across Stark’s three phases (Stark I, II and III) that cover an inordinately wide range of activities that are part and parcel to physician practices and their relationships under Medicare and Medicaid. Stark also has a series of “safe harbors”; practices that on their face may be violations but when conducted in certain ways and manners, the practice is not a violation. The establishment of these safe harbors principally arose to deal with issues where certain practices crossed between Stark and the Anti-Kickback laws. Examples of existing safe harbors are physician investments in joint-ventures in underserved areas, practitioner recruitment in underserved areas, physician investments in their own group practices (provided the practice group meets Stark definitions), and specialty referral relationships where the referral from a primary care physician to a specialist includes a fundamental understanding that the specialists will refer the patient back to the original primary care physician for continued care (money or other inducements cannot be a part of this referral process). Within the post-acute industry, the most common Stark violations I see are the relationships between contracted physicians serving as Medical Directors in Hospices, Home Health Agencies and Nursing Homes where the compensation relationships are not properly structured to avoid compensation ties to referrals or to avoid improper compensation limits (inducements) above and beyond market and Medicare norms.
A quick review of the above laws and their simplified descriptions suggests that conducting or continuing certain practices is a proverbial “dance with the devil”. The question posed thus, is why does fraud rise to the level that it does and seemingly, on a broad basis within organizations that have the resources to understand the laws and their implications? The answer is: Market and Economics. Consider the following;
- Literally today in the U.S., there are more providers and capacity than true organic demand, when demand is correlated to “paying demand”. Arguably, demand is probably sufficient enough to fill all capacity but when placed into the context of demand that pays in amounts equal or greater than the fixed and variable cost of providing the service, the “desired demand” is less than the current provider capacity. If one were to re-frame demand to include payment equal to or greater than the fixed and variable costs of service plus a margin, the remaining demand is shaved lower yet again. It is this level of demand that produces considerable competition among providers, often to levels where provider survival is at stake unless new sources of paying patients can be developed. When cases such as the recent Qui Tams involving Vitas and Asercare arise, one can quickly understand the inherent pressure within these organizations of developing new sources of patients, even if doing so runs afoul of Medicare anti-fraud laws. In essence, the risk of organizational failure, poor performance, reduction in corporate value, etc. is greater than the risk of being inviolate of one or Medicare anti-fraud laws. Taken marginally deeper, the truth is that there are simply not enough core (by definition under the Medicare hospice benefit) hospice patients at any one point in time, with adequate payment, to meet the overall capacity in the industry. The same holds true for home health and is becoming more apparent in the SNF sector.
- Market areas and their demographics and economic conditions change faster than healthcare providers can react and thus, what was at one point a good market may no longer be (one need only look at Michigan and in particular the Detroit area and corridor areas). Operationally, even for remote office agencies such as found in home health and hospice, healthcare service provision involves a certain level of fixed investment and for certain, infrastructure investment. Providers that have witnessed market fortunes change and thus, paying volumes shift, are stressed to replace dying or dwindling volumes with other volumes. All too often, I watch once unthought of marketing practices, taboo relationships, referral relationships, and specious coding practices develop almost in concert with market changes. The alternative? Shutter offices, lay-off people, write down investments or abandon buildings. For providers that have gone this route, the pain can be almost unbearable as trying to exit a now dead or severely decayed market is far from fluid; potential users or buyers of infrastructure don’t tend to relish the opportunity to enter a decaying or impaired environment.
- While in former periods of economic decline, healthcare remained mostly immune from too much spill-over impact, the latest decline and continued stagnation violated past experience. The reason is less one-side economically and more about a wider incorporation of elements that are causes and effects of the current economic circumstances. Simply stated: This current period of recession and stagnation contains more elements of public policy causes than market forces. This is particularly true for healthcare. Though past economic periods evidenced rise and fall, recovering for market purposes in almost predictable fashion post fall, such is not the current case, fundamentally due to the public policy issues that are dogging a normative recovery. What this recession showed clearer than any other is that our economy is structurally unsound and our core time-held ideologies regarding the role of entitlements in a first-world leading society awash in smoke and mirrors; promises that are unsustainable and moreover, fiscally impossible to fund. Thus, for providers, two forces are at work today (and for the immediate future) to constrain any real growth in payments and volume. First, without a more robust growth in employment (non-governmental) and overall economic activity, those without health insurance will remain greater in number than historic (a payer source reduction) and programs reliant on tax revenues for funding, facing mounting deficits (Medicaid and Medicare). In economic periods when unemployment remains high, pressure mounts on governments to take-on a greater responsibility of social welfare, during a period where revenues via taxation sources are declining or on-balance, stable but lower than normal levels. As the burden falls on entitlements, deficits increase to shift resources toward these programs. Different in this period is that the balance sheet room to simply create more “credit” or “dollars” ( deficits) to shift toward entitlements is functionally non-existent. The recipe today that on the economic front drives an element of fraudulent behavior is this. One part fewer paying patients as benefit levels for health coverage have evaporated or waned. Another part diminished resources from patients to pay for services, even where some level of benefit may still be intact. Two parts an outlook of Medicare cuts and reductions. One part current cuts to Medicaid payments, a program that already under-compensates providers for their costs of care. And finally, three parts Washington policy makers awash in dysfunction, lacking fiscal clarity at each turn and an inability to generate traction on any programmatic plans of common sense that would create some level of stability and reassurance (the three parts are the House, the Senate, and White House). To weather the malaise and compensate for what is and likely what will be, providers turn to paths creative. The paths I too often see are by destination, a road to fraud. Whether the activity is upcoding for patients that do not fit a higher level of reimbursement to engaging in contract negotiations at rates below Medicare allowable amounts to help offset reimbursement reductions, to billing at certain levels and providing care below the level billed to create a margin, each activity (and I could list many others) is at least in major part, a direct reflection on the current economy that is overlaid on healthcare.
Medicare, Fraud and Why: Perspectives on the Post-Acute Industry
What never ceases to amaze me is the amount of post-news discussion that occurs when certain issues rise to the front-page (or near the front page). Seemingly, industry side-liners awaken and look in disbelief that one major provider organization or another is again, embroiled in some OIG investigation, lawsuit or official inquiry concerning their Medicare billing and/or care provided to Medicare patients. The word “fraud” is tossed out quickly; the shock value of vulgarity at a cocktail party in polite company is expected. Statistics from qualified and unqualified sources burst forth claiming, some correct, that approximately 20 to 30% of care paid for by Medicare is inappropriate, unwarranted, unnecessary or down-right fraudulent. Truth be told, the unwarranted, inappropriate, and unnecessary talk is like Monday morning quarterbacking; an easy sport to engage in when all the facts are visible and the outcomes known. The real question that is rarely, if ever addressed, is “why” do these issues consistently arise and most often, among the same provider organizations.
The simplest answer as to “why” the issues of fraud and inappropriate care and billing arise (routinely) is Medicare itself. Any payment system that rewards via higher payment, greater or increasing levels of acuity and utilization is ripe for provider organizations to chase the greater reward, even if doing so stretches the limit on necessary or warranted care. Think pro sports. Higher dollars go to players that hit more home runs than singles or for average. In fact, less than a few years ago, the prize for the “long ball” was so good that players opted to cheat with chemistry as their true ability alone would not produce the highest return or largest pay days. In economic terms the old axiom of “what gets rewarded gets done” applies. Medicare has a long history of over-valuing certain types of patients, services, etc. while under-valuing others and thus, it is by its own rate and payment methodology, inducing a certain amount of “fraud”. When the rearview mirror test is applied or the hindsight test (that which is 20/20), its fairly easy to look at groupings of payments, diagnostic codes and outcomes and find structural flaws suggesting inappropriate or unnecessary care was provided. The remaining question then revolves around how to pre-examine each event or group of events to a level to assure that no inappropriate care or unnecessary care is rendered. Truth be told, I’m not sure that this question is completely solvable.
In some cases or circumstances notable of late, the word fraud is attached or overtly implied, to events that likely aren’t fraudulent; more indicative of gaming the system. For example, the Senate investigation of Amedysis, Gentiva, Almost Family, etc. was principally tied to an investigation completed by the Wall Street Journal involving therapy visits. At the core, the implication was that these companies “maxed” the number of visits to trigger the highest level of payment. Important to note is that the practice of “clustering” visits around the higher paying thresholds began when Congress created the higher paying threshold out of concern that “therapy” was being limited to home care patients. Of additional interest is the role MedPac played in this event, reporting average profit margins for these organizations approaching the upper teens to twenty percent range.
In the example above, the issue front and center is Medicare profit vs. appropriate level of profit (whatever level this is). With hindsight being 20/20, it is easy to see that perhaps, some therapy was over-provided or in some cases, some patients were selected intentionally because of their therapy or rehab potential. Did the agencies referenced intentionally seek to align their referral development practices and marketing approaches to attract certain patient types? Of course and doesn’t every business do the same? Personally, I have run organizations that did this and provided guidance to others on how to do this. The reality is that some patients are better paying than others and regardless of whether an organization is non-profit or for-profit, the goal of any business is to attract paying customers and preferably, the customers that pay the best. When the incentive is laid forth by Medicare that certain types of care and services come with higher rates of reimbursement, it is only logical that providers will seek to develop business models and systems that garner the highest rate of reimbursement. If unnecessary care was the sole issue of whether these agencies did wrong, I won’t attempt to defend them but alternatively offer the whole health care industry as an example of unnecessary care provided across the spectrum. By our nature and culture, we have come to believe that more is better. An analysis of “unnecessary” in any area from drugs to surgeries to diagnostic tests to hospital stays and physician visits, many of which are/were paid for by Medicare, would clearly show this to a be a systemic problem and as categorized by CMS/OIG and the Senate, fraud and violations of the FCA (False Claims Act).
There isn’t a segment of the post-acute industry that I follow that remains honestly non-participative with regard to Medicare billing impropriety. There also isn’t a segment that isn’t constantly lobbying Congress to continue to shovel more money into Medicare and generally, skewed toward certain categories, diagnoses or patient-types where allegations of fraud routinely arise. Recently, CMS announced a rebasing of RUGs rates for SNFs, primarily targeted at certain therapy categories. A huge cry of doom erupted from the industry and the industry tag alongs, principally therapy companies. I read for days, prognostications of SNF margins turning negative, stock prices falling, layoffs, etc. What was the real issue? Medicare is being used by the industry to routinely subsidize revenue shortfalls that occur via Medicaid. In reality, as Medicare is a bit payer in the SNF world (less than 20% of all days of care), the admission that Medicare is subsidizing other shortfalls is the same as stating that Medicare is overpaying SNFs. For CMS, the issue was about another “miss” in the ongoing game of trying to tie reimbursement to care needs to patient populations. The industry was, as has always been the case, one step ahead in moving its practices to where the money is. No different than the home health industry events, the SNF industry targeted certain types of patients and unquestionably, a portion of the therapy provided may fit the hind-sight definition of “unnecessary” either by level coded or visits actually provided. Stretching the diagnosis, seeking certain referrals, building relationships that are economically advantageous to various parties, etc., is as common in the SNF industry as it is in hospice, home health, and hospitals.
The latest hospice industry news event concerning Vitas and inappropriate referrals of non-terminal patients is indicative of a twist on an old theme, nothing more. While this instance is truly creative by definition, involving an insurer and a provider, both potentially culpable in a scheme to shift costs and maximize reimbursement, it still only rises to the level of “old news”. For years, the hospice industry has been rife with a similar dance played between hospices and SNFs. Caught or most recently on display doing this dance is Aseracare. In this dance, hospices circulate among SNFs with high Medicaid census and patient profiles marked by long-term dementia and debility; custodial care by definition. The hospice, in need of additional patients, tells the SNF that it can qualify many of these types of patients for the Medicare hospice benefit and in exchange, the SNF will continue to keep the Medicaid daily rate but the hospice will assume drug costs, supply costs, even DME costs plus augment the staffing. As a kicker, the transition of the patient to the care of the hospice provides some regulatory relief to the SNF as now the overall care of this patient shifts to the hospice and documentation, assessments, and other paperwork otherwise required by the SNF no longer apply. As expected, a win-win of sorts appears. The hospice gets daily rate from Medicare, the SNF the daily rate from Medicaid, the hospice census improves, the SNF census remains the same, etc. The real winner here however is the hospice as an SNF patient is fairly inexpensive to care for as the SNF provides much of the care infrastructure. Visits to SNF patients are typically fewer than a comparable home-bound/community patient and by the nature of many of the patients qualified in this scenario, the length of stay on hospice is considerably longer – a nice stable, revenue stream. Using the 20/20 hindsight view however, shows that a preponderance of these SNF patients don’t fit much of the Medicare hospice criteria and in the acid test category of likely terminal in six months or less, a plausible argument can’t be made.
In the quest for higher reimbursement in an environment facing Medicare spending minimization, control and cuts. behaviors and tactics become irrational and by their very nature, borderline or outright fraudulent. The most rampant that I see is upcoding or creating phantom diagnoses and need where none truly exists. The hospice illustration above is one such example. Others that are common include “stretch-rugging” by therapy companies and SNFs, discharging dually-eligible Medicare SNF patients to hospitals when the medical needs (and supposed costs) increase, and back-dating orders. In some cases, the activity is subtle such as SNFs that are willing to take below fee-schedule discounts for laboratory and radiology services for Medicare residents, even though doing so could lead to a Stark violation for the SNF. The whole chase is about trying to maximize the net revenue under Medicare, either by increasing the volume or minimizing the costs associated with caring for these patients.
Still, the question begs as to “why” this level of fraudulent or inappropriate activity persists and, in-spite of well published examples of providers getting caught. As I wrote earlier, a portion is due to the fundamental flaws inherent with Medicare, how it pays and the program benefit structure. Chalking it all up however, to Medicare while easy, is like solving half of a crossword puzzle and calling it done. In my follow-up post, I’ll provide a bit more clarity as to what I see, are the reasons “why”.
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.
CMS Announces Medicare SNF Cuts: The Implication
On Friday, CMS released its Final Rule regarding FY 2012 SNF PPS reimbursement. The Final Rule implements a reduction or “cut” in SNF PPS payments equal to 11.1% or $3.87 billion. The 11.1% reduction is based on 2011 rates and spending/outlays. In their proposed final rule published in May, CMS alluded to the real possibility that it would seek to reduce SNF payments via some element of program/technical correction as well as rate reductions. Their reasoning stemmed from claim and resulting outlay experience that was significantly greater in dollar amounts than originally forecasted when MDS 3.0 and RUGs IV was devised and implemented. Summarized, CMS had intended the conversion from RUGs III to RUGs IV to be expenditure neutral for Medicare. Per recent figures and analysis from the OIG, expenditures under RUGs IV are running 16% higher than the “neutral” target. For more information, see my recent post on this same topic at http://wp.me/ptUlY-8Q .
Given that the text of the Final Rule won’t be published until August 8 and as of Friday, CMS was still working on recalibrating the CMIs under RUGs IV, it isn’t possible to provide direct analysis of the actual rate scenario for FY 2012. What I do know however, is that the “bark” in this case is definitely worse than the “bite”. While overall spending is set for reduction, this doesn’t necessarily correlate directly to rate. Briefly, here’s why:
- CMS has factored into their projections of lower spending levels, a series of technical corrections such as changes in how minutes are allocated among participants in group therapy. This change closes a loophole or as I have said, an area of oversight in the transition from III to IV. Going forward, group therapy minutes must be divided in equal increments among all participants (e.g., one hour of therapy provided to a group of four equals four 15 minute therapy sessions; not an hour allocated to each participant as the system presently allows). Additionally, CMS is tightening the Change of Therapy assessment requirements to more specifically, capture any changes in a patient’s therapy needs that would preclude re-classification to a different (presumably lower) RUG category. This change is separate from any Change of Condition assessment.
- Recalibration of RUGs categories via adjustment to the CMIs will occur based-off of 2011 utilization and projections. The net result is change in category payments that will remain higher than experienced under RUGs III levels. In short, the net “cut” will not be 11% across the board. SNFs need to be astute as to how the CMIs work and translate into payments under each RUG. Recalibration is designed to restore parity to the overall expenditure profile. In order for CMS to do this, it will overlay utilization trends and patterns across the CMI continuum and adjust rates within the scope of its technical corrections, to forecast an overall program expenditure target that agrees (theoretically) with its original intentions in converting to RUGs IV. In short, this doesn’t mean an 11% direct rate reduction. If CMS were to impose and 11% cut to each category, overall outlays would reduce by more than 30% – that is not the target.
- Based on what I see from most providers with a fairly balanced Medicare book of business (mix of clinical/nursing and rehab cases on par with 40% clinical, 60% therapy), the net to their per diem will be flat to a reduction of 2 to 5%. This means that a facility with an average per diem today of $450 per day will see a 2012 per diem between $425 and $450 per day. Providers that took advantage of the group therapy option to escalate or maintain their high rehab payments under IV will likely see a greater revenue shock. In virtually all cases, providers that have a fairly balanced Medicare book should see a 2012 Medicare per diem that falls 6% to 8% higher than their FY 2010 per diem.
I will have a better idea of the actual impact when I see the final CMIs and resulting RUGs IV rates. In the meantime and until the Final Rule and rates are implemented on 10/1 of this year, I don’t see much in the way of political intercession to change (positively) the rate and spending scenario. Spending at the Federal level is a toxic subject and even with a potential debt ceiling deal looming, the microscope will remain directly on all areas of federal spending. Entitlement spending (Medicare, Medicaid, and Social Security) is rising substantially faster than discretionary or military spending and logically, presents a big target for deficit hawks. Logically, it will be difficult to gain the support of any Congressional industry sympathisers to push more money back into a system that most acknowledge, was unintentionally overpaying for care. Consider FY 2011 a bit of a windfall and the changes forthcoming, pretty darn modest; all things being equal.
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.
RUGs IV Here to Stay!
The news we all hoped for came forth this afternoon, wrapped with a big bow just in time for the Holiday season – RUGs IV is here to stay. The House this afternoon passed a companion version of the bill passed in the Senate yesterday. President Obama is expected to sign the bill into law shortly.
The legislation calls for $19.2 billion in appropriations to make RUGs IV effective retroactively to October 1, 2010. In addition, the legislation extends the Medicare Part B therapy cap exception provision presently in place, until the end of 2011. Without such an extension to the exception process, the Part B therapy caps were set to be automatically reinstated with no exception on January 1, 2011. As part of the extension of therapy cap exception process, the legislation also staves off pending cuts of approximately 25% in Medicare payments to physicians required by the current sustainable growth formula which drives the physician fee schedule (and related Part B services such as outpatient therapies) under Part B. Without such a correction to the physician fee schedule, physician fees were set for the significant reduction on December 18 (Congress had already moved the date back to the 18th from the 1st of December).
The implementation of RUGs IV back to October 1 solves significant headaches for SNFs and CMS. As difficult as it has been for providers to get up to speed on MDS 3.0 and RUGs IV, the process was significantly complicated by the unknown of how the planned RUGs Hybrid would work and whether CMS would seek to recoup potential overpayments from providers as a result of RUGs IV being used temporarily. Many providers sought to establish liability accounts on their balance sheets for just such an event, even though estimating the liability was somewhat complex due to the lack of solid information regarding the Hybrid groups coming from CMS.
Having spoken to a number of people within CMS, the implementation of RUGs IV back to October 1 is a true gift. There were consistent difficulties in getting the Hybrid grouper to function in conjunction with MDS 3.0 and as such, a growing number of inquiries from the industry bombarded the agency expecting more information. Even more troubling was the prospect of having to deal with payment recapture; a procedural boondoggle CMS was hoping to avoid. In the end, I am confident that a number of people at CMS are rejoicing this evening.
On a final note, I wish to offer my personal congratulations to my industry colleagues and the trade associations who lobbied for this victory and to my readers, clients and business partners who required that I kept them informed and in many cases, helped me with additional information and of course, thoughtful inquiries that made me stay on top of this important issue. This policy victory was long overdue but as the saying goes, “better late than never”.
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