Enhanced FMAP Funding Moving Through the Senate
On December 31st of this year, enhancements made to the Medicaid FMAP (Federal matching dollars) via the ARRA (Stimulus or American Recovery and Reinvestment Act) are set to evaporate. In a series of bills and other legislative initiatives throughout the spring and early summer, Congress has failed to extend funding to prevent the evaporation of the additional FMAP funding. See my related posts below for more information on Medicaid, the FMAP provisions, and the legislative activity to extend the enhanced match provided under the ARRA.
Yesterday, on a procedural vote to end debate in the Senate, another version of a “jobs” bill containing a slimmed down extension of the enhanced FMAP crept forward. The vote to end debate and send the bill forward for a final vote was 61-38. With such a definitive margin in support of a vote, it is all but certain the bill will pass on a final vote. The measure then must go to the House, presently in recess, where it will be either voted upon “as is” or modified and returned to the Senate. Speaker Pelosi has indicated that she will call the House back to session in order to produce a final bill for President Obama’s signature, prior to the re-opening of schools in late August/early September.
The bill provides $26 billion in additional funding with $10 billion targeted toward education and public service employment and $16 billion for extension of the enhanced FMAP. The $10 billion is designed to prevent the lay-offs of teachers, firefighters, police and other municipal service worker jobs that are purportedly “at-risk” once continued funding provided in the ARRA evaporates. Communities, states, and civil service employee unions have been pressuring Congress to extend some levels of Stimulus funding, claiming that without additional dollars, budget cuts would cause lay-offs of key positions such as teachers. Republicans have effectively stalled previous legislative attempts to extend additional funding claiming that the dollars will add to the deficit and are effectively federal bail-outs for the teacher’s union and other municipal service employee unions. In this round, Senate Majority Leader Reid brought forth additional cuts in other programs plus tax increases to generate a revenue offset to the new spending. The resultant funding shift caused Republicans Snowe and Collins to vote in favor of ending debate (a show of support for the bill).
The $16 billion targeted toward additional Medicaid funding was heavily lobbied for by states and health care trade associations as critical to prevent reimbursement cuts and benefit reductions for seniors, the poor and the disabled. With 48 out of 50 states having moderate to severe budget deficits and current Medicaid structural deficits, loss of the enhanced match would necessitate programmatic cuts. In some cases, states that were in a July 1 fiscal year budget process and/or December 31 fiscal year budget process already installed programmatic cuts and reimbursement changes as the timing of their budgets required an assumption of lost Medicaid funding coming at the end of the year.
While the probability of an extension to the additional FMAP provided under the ARRA appears strong, the House must still approve the bill prior to the funding becoming an actuality. The timing will clearly assist most states but in some cases, a portion of the cuts already enacted in certain states will remain. Additionally, the added funding is not without an early 2011 sunset date or in other words, the $16 billion is only a temporary “stay” of execution for state Medicaid budget problems. In all likelihood, unless Congress consistently re-ups with more funding for continued FMAP support, states will need to significantly restructure their Medicaid programs over the next twelve to eighteen months in order to maintain basic solvency. With the economy still in a very slow recovery mode, most states won’t see economic growth and resulting revenues from taxes sufficient over the next year to avoid cuts in their Medicaid programs.
Medicaid Expansion and the PPACA
Article I wrote for the National Healthcare Reform Magazine on the implications for Medicaid as a result of the expansion provisions under the health care reform law. Click on the link below (or copy and paste) to view the article.
http://healthcarereformmagazine.com/article/health-reform-and-medicaid-expansion.html
As the Home Health and Hospice World Turns: Part II
In Part I, I wrote about my last week’s conversations, etc. regarding the home health industry, specifically Amedysis, the Senate Finance Committee inquiry, the industry impact via the PPACA and the likely consolidation and merger trends that are approaching. Suffice to say, not all of last week’s news and conversations focused on the home health industry as over the last thirty days, much has happened in the hospice industry as well. The difference between the two industries is that in hospice, the major news involved a significant merger and in home health, the major news involved the legal and compliance issues of the largest provider entity – Amedysis.
The hospice industry saw, via the merger between Gentiva and Odyssey, the creation of the largest home hospice company in the industry. Gentiva, while also a provider of home health, clearly chose to direct more of its attention to the hospice industry, moving from a moderate player in the industry to the predominant player via the acquisition of Odyssey. Odyssey, while not as large as Vitas (the former largest hospice provider), held substantial market share and presence and in many regions and distinct market areas, competed head to head with Vitas for patients. For more information on the Gentiva/Odyssey transaction, see a related article in my company’s E-Newsletter at http://wp.me/pD9Ac-4Q .
Analyzing this merger leads me to a series of assumptions about where the hospice industry is at present and where it is likely headed.
- Hospice is now clearly a mature market or in other words, a market that is unlikely to grow significantly over the near to intermediate term horizon. Despite a fairly profound demographic shift occurring over the next twenty to thirty years (the maturation of the baby-boomers), there is no real indication even with this influx of older adults, that hospice as model of care, will gain in referral popularity. While seniors utilize hospice more in total numbers than any other age cohort, as a percentage of the total cohort, utilization trends show little forward growth. There are a number of reasons why;
- Culturally, U.S. medicine and the U.S. population still values the process of cure or health restoration far greater than the concept of natural death. As hospice is a downstream referral (the referral comes typically from non-palliative medicine trained physicians or via hospitals and/or long-term care providers), the hospice industry relies on the referral source to be; a) knowledgeable about the value of hospice and how it works for patients and their families, b) willing to forego potential incremental revenue for continued care by making the referral to a hospice, c) willing to engage the patient and the family in a difficult conversation regarding end-of-life and treatment futility. As long as these dynamics remain in place to the extent they presently are, the growth of utilization will remain fairly stagnant.
- Financially, the incentives for referrals to hospice don’t truly exist within the current U.S. system. There are no barriers in-place to reduce the reward (payment) for continued acute, diagnostic or curative care (choose your own verbiage) and as a matter of fact, the reimbursement systems (private and public) pay incrementally more for more intense care than palliative care, even if arguably, the care is futile. As only patients and their respective treating health professionals can conclude that continued curative care is futile or unreasonable, the process of garnering more money for more treatment remains intact as a perverse incentive.
- While not for hospice people or physicians trained in palliative medicine, terminality remains an uncomfortable and even disputed condition for many physicians. Patients and there families still wish to avoid discussions far too long and in some cases, avoid the discussion altogether. While in-roads are perhaps being made in some medical centers and in certain communities, these in-roads are miniscule and not evident of a ground-swell movement toward open discussions regarding end-of-life decisions.
- As with the home health industry, the movement in Washington is toward curtailing the growth of hospice spending. The prevailing feeling in Washington policy arenas, supported by Medpac, is that the hospice reimbursement under Medicare is too generous and the benefit itself, easily manipulated and poorly defined. While the PPACA did little to negatively impact the hospice benefit or payment, the recommendations directed to the Secretary of HHS in the language intones significant changes forthcoming.
- Reimbursement under Medicare will change such that early days in the initial benefit period will be paid more as will days at the end of the patient’s stay (proximal to death). Days during the interim, longer stays will be reimbursed with lower payments. The point here is supposedly a recognition that patients with long stays have periods of stability necessitating far less care from the hospice.
- More emphasis will be placed on denying stays for non-specific terminal conditions or denying portions of stays. CMS has determined that too many longer stays are related to diagnoses such as terminal dementia, failure to thrive, etc. In order for these stays to be covered, the onus will fall on the hospice to provide very detailed documentation supporting patient decline.
- More emphasis will be placed on physicians to document terminal conditions and to prognosticate length of likely survival, especially at recertification periods. More direct “hands-on” involvement of physicians will also be required (physically seeing the patient).
- Certain types of stays and relationships between hospices and nursing homes will be closely monitored and reviewed. CMS and Medpac have determined that hospice stays in nursing home environments on behalf of nursing home patients are considerably longer and possibly in many cases, in violation (the hospice) of the conditions of participation as hospices utilize nursing home residents as sources of revenue but often, fail to meet the care requirements (using the nursing home as the source of care and service) under the hospice federal code. Additionally, CMS and Medpac have placed the target for reform squarely on the large for-profit hospices such as Vitas, Gentiva and Odyssey which have typically used nursing homes as major sources of referrals for hospice patients.
- The PPACA, while not bending the cost curve or reducing the overall level of national expenditures on health care, does change in the interim, the overall health care economy. Providers are re-positioning and re-grouping to combat what they perceive, and in some cases know, will be negative changes to how they presently do business. Providers which rely heaviest on Medicare as the bulk of their overall revenues will move the fastest and the most aggressively to alter their current business practices, knowing that regardless of the overall status of the PPACA (repeal, restore Medicare cuts, etc.), the health care economy is entering a long period of fiscal constraint – payments will never be as high or as fluid as they once were.
- Because of points 1, 2 and 3 above, the industry will head into a period of consolidation and even, contraction. The Gentiva/Odyssey merger is a signal of the maturity of the industry and the trend toward tighter regulation of hospice stays under Medicare (the bulk of the hospice revenue) and less economic value per each stay. Lower future revenues per stay, either via reimbursement cuts or regulatory constraints placed on the length of stay, means more overall stays are required to equal the same or greater revenues going forward. As the growth curve of new “potential” referrals is flat, the only real source of new business or referrals for a provider is acquisition of existing market share (buying someone else’s referrals). In order to maximize profitability in an environment where the market is mature and the total revenue per each case is flat to shrinking, providers will have to adopt one of the three strategies below.
- Acquire other providers to build more referrals or volume. While each patient stay will be economically less valuable, increasing the total number for a provider while maintaining expenses on a ratio basis, lower than revenue, will provide a method to achieving overall net income targets - critical for publicly traded provider organizations.
- Shrink the organization to fit the new revenue and length of stay realities that are in place and forthcoming. An organization that can right-size its operations to fit the new business paradigm will be smaller but potentially equally or perhaps, more profitable. The risk here is that provider organizations that are acquiring market share may marginalize some markets such that a shrinking provider (by choice) loses desirable market share.
- Expand non-Medicare business and add complementary businesses that may provide incrementally equal or more revenue than that which is lost under Medicare. Arguably, this strategy may only work for regional or single market providers and those that have strong system ties (hospital owned, etc.).
One final point to note concerns the economy. Absent from the above factors I laid out influencing the hospice industry is the stagnant economy. With recovery a daily discussion regarding likelihood and timing, current uncertainties persist that impact hospice providers rather dramatically.
- The overall number of paying patients available to all providers within the health care economy has shrunk in recent years. This shrinkage is primarily due to job losses and benefit losses. Until employment rebounds and jobs with benefits become more plentiful, consumers for health care in the form of paying patients will remain down.
- When fewer paying patients are in the queue, those patients that do have a payer source, even a less than optimal government payer source, are prized commodities. Each provider wants a piece of the same paying patient.
- Hospice is as I pointed out, a downstream referral. When the upstream referral source, principally hospitals, lacks sufficient paying patients in the queue to replace current patients it “may” customarily refer downstream, it holds the paying patient longer, either delaying the referral and the portion of revenue that comes with a longer stay or avoiding the referral all-together. Similarly, all downstream referral sources such as nursing homes compete aggressively for the referrals even though a referral of a terminal patient (or potentially terminal patient) is ordinarily, not a prize catch for most nursing homes. This competition erodes the number of total possible referrals available to a hospice.
- Each patient has an economic value to a provider. When a patient with a higher economic value (a better payer source) are lacking, providers sort down to the next patient level. This sorting process occurs as a result of too few patients with payment sources available to match the supply or capacity within the existing provider universe. Some markets hit hardest by the downturn will evidence this reality in greater depth and unfortunately, with greater persistency. For hospices (and all downstream providers) in these heaviest hit markets, referrals have trended down and will stay down until the supply of patients with payment sources increases and specifically, the supply of patients with better payment sources and today, deferred health care needs (e.g., elective surgeries such as joint replacements, etc.).
As the Home Health and Hospice World Turns: Part I
Sorry for borrowing (piece of) a soap opera title for this post but it is rather appropriate given the news that occurred over the past 30 days. Just this past week, I’ve been interviewed by two business newspapers and on the phone with an investment banking firm I consult with from time to time regarding Amedysis, Gentiva and Odyssey’s merger, the pending impacts of the PPACA on the home health and hospice industry, mergers in the industry in general and using a “catch-all”, what the “heck” is going on in the home health and hospice sectors. With a chance to recoup over the long 4th of July weekend (and organize my notes from last week’s conversations), a post on what all the conversations were about seemed appropriate.
Amedysis: A month ago, on my company’s E-News site (http://apexhealthcareconsultants.info), I edited an article regarding the Senate Finance Committee’s inquiry into the Medicare billing practices of a handful of very large home health agencies (Amedysis, Gentiva, LHC Group etc.). The inquiry is a result of an article that appeared earlier in the year in the Wall Street Journal, focused quite intently on Amedysis’ billing practices; principally as applicable to therapy visits. The fall-out since the Wall Street Journal article and the Senate Finance Committee article is two-fold. First, the class action suit (I’ll touch on it in a bit) and the hefty drop in Amedysis stock price.
In brief, the class-action suits (there are three) focus primarily on the perspective of shareholders (the “class”) and alleges that the questionable Medicare billing practices (none of which at this point, CMS or the OIG has taken specific issue with) served to artificially increase the share price of Amedysis stock. The allegation of abuse of the Medicare system, prior to any action taken by the federal regulatory system in the form of a fraudulent billing investigation or claims investigation, is a bit different in-so-much that it essentially accuses the company of manipulating its earnings as opposed to causing harm to any patients or group (class) of patients. The “harm” for shareholders is the drop in price that would/did occur as a result of the alleged fraudulent billing practices. To add a twist, the suits also allege Sarbanes-Oxley violations which require the corporate officers of publicly traded companies to abide by a code of ethics. Amedysis settled an allegation of fraudulent Medicare billing practices in 2003 (for Medicare activity between 1994 and 1999) and as part of the settlement, expanded its corporate compliance activity/program. Additionally, since 2003, Amedysis has had notable turnover of the key financial executives (CFOs primarily) with active rumor-mill chatter focusing on the cause related to overly-aggressive Medicare billing practices. Medicare represents 87% of Amedysis annual revenues, by far the largest percentage for any home health provider in the industry.
As Paul Harvey (famous radio newsman now deceased) was famous for; “Now, for the rest of the story”. There are a number of different and integral factors in play that are unique to Amedysis but also, symptoms of an industry, a payment system and a flawed health care reform law.
- The issues regarding possible Medicare over-billing or at least, aggressive billing are not new for Amedysis. Their growth has been remarkable and unique for an agency so fully immersed in a government revenue stream. What is unique at this point in time is that the Senate Finance Committee inquiry, Wall Street Journal article and now the class-action suits come in advance of any customary federal regulatory actions. I do suspect that CMS and the OIG will enter the fray in the near future.
- Medpac has reported to Congress repeatedly that the Medicare payments to home health agencies were “lavish”, producing double digit profit margins on average, for most Medicare home health encounters. The PPACA (reform law) effectively cut Medicare payments to home health agencies and increased the documentation requirements for agencies to justify the necessity of continued visits.
- The feds have aggressively stepped-up their search via Recovery Audits and targeted billing inquiries for Medicare over-payments or more appropriate, Medicare fraud activity. This activity is two years old and growing each year with additional force. The writing is/was “on the wall”.
- To fully understand “what” is at the core of the Amedysis issue is to understand the age-old economic axiom that states, “what gets paid for (rewarded) gets done”. Medicare provided a utilization incentive tied to a certain number of therapy visits ($2,200 for 10 visits). Agencies thus targeted patients and developed care practices that maximized the opportunity to garner the incentive payments. In a typical government move, CMS rescinded the incentive payment as it became obvious that agencies were “gobbling-up” the requisite visits and conforming patients to achieve the incentive. A more meager incentive of a few hundred dollars is now provided at six visits, fourteen visits and twenty visits. Oddly enough, companies today seem to provide far more “six visit” encounters than twenty visit encounters (profitability vs. cost for twenty visits as well as a likely evident decline in medical necessity by the twentieth visit). Amedysis of course, is not alone in seeking to tie care provided to reimbursement nor is the home health industry alone in gaming the Medicare reimbursement system for additional dollars. For-profit hospitals, nursing homes and hospice agencies (and non-profits) alike are skilled at “Medicare maximization”, effectively matching what Medicare will pay with certain types of referrals, matched against the costs incurred to care for certain types of patients. This game goes on year-in and year-out with CMS constantly tweaking PPS categories to incent providers to take certain patient types (payment was too low) and to reduce the profitability of other patient types. In short, what gets paid for gets done.
- The PPACA did nothing to reform the system and arguably, it made it worse by attempting to extract funds via reimbursement cuts from Medicare. Of course, it is unlikely these cuts will be fully made or sustained as Congress has never shown the political will required to cut provider payments. By not truly reforming how Medicare reimburses providers for care, the PPACA only served to layer on huge amounts of bureaucracy to an already antiquated reimbursement system. In the end, nothing changed in terms of how Part A and Part B of Medicare pays providers; only the amounts “theoretically” changed. As a system, Medicare pays more for more care and higher acuity care. Providers will naturally gravitate their referral gathering efforts and marshall their care delivery systems toward the patient encounters that create the most “spread” (cost vs. payment). As the overall universe of these “profitable” patients is somewhat fixed, the provider universe is forced to unnaturally stretch the definitional boundaries of patient types (upcoding in plain health care vernacular). In other words, there are not enough truly “organically” existing patients that fit the best (most profitable) reimbursement categories but there enough that are perhaps, at the fringes. Add the fringe patients with a bit of creative tweaking via assessment and documentation to those that organically exist (fit the exact patient type) and presto, sufficient current volume for all providers. The difficulty for regulators and others who would charge that the fringe patients are not truly members of the organic group (those whose care requirements exactly match a certain reimbursement category or categories) is “proof”. The provider and medical communities are far better versed in assessment techniques and documentation requirements and as such, little can be done to reign in this reimbursement “three-card Monty” game. Until the reimbursement is reformed to reward better, more appropriate and efficient care versus “more” care, the over-reimbursement problem will remain, as it has for decades dating back to when providers ballooned certain costs to receive higher per diem rates from Medicare (under the cost-based reimbursement system).
What comes next in this paradigmatic shift in the home health world is merger/consolidation. As the profitability of one element of Medicare business shifts, larger agencies will acquire smaller to medium-sized agencies in order to increase market-share, lever infrastructure, and to supplement lost incremental margins with volume. Simply put, if the relative margin for one type of encounter shrinks, recouping that lost margin (or at the least the majority of it) becomes a function of incurring more encounters with smaller margins. As long as the incremental costs of additional capacity to handle greater volume remains in a ratio, lower than the net revenue received from the greater number of “less profitable” encounters, it is possible to generate a similar level of organization-wide, net operating income. The fastest and arguably most efficient way to create incrementally more encounters is to acquire someone else’s encounters at a price-point that is sufficiently low enough to create virtually (virtually to mean within a short time-frame) instant margin via the increased volume/market-share.
In effect, smaller agencies with less volume to spread the reimbursement loss/risk become attractive targets in this environment. A smaller agency’s value drops as its revenue/margins shrink and with limited geographic presence and referral markets to spread the lost revenue risk across, the entity price declines. The decline in entity price is attractive for a large acquirer seeking solely market share and/or incremental volume. In short, the acquirer is capable of paying less for the economic value of the entity (it has declined or will declined) which it really doesn’t want, save the referral market or incremental patient volume which it desires. The value is purely found in the market share or referral base, not in the economic metrics or financial value of the entity. For a larger provider, acquiring smaller agencies within areas that the larger provider presently doesn’t serve or undeserves is the goal. The “merger” is almost protectionist; protecting profit margins or revenue streams that are shrinking by increasing volume and thus (hopefully), more overall revenue, equalizing the lost revenue once gained per encounter during periods of higher reimbursement.
In the next post, Part II, I’ll review what is going on in the hospice industry and why the Gentiva/Odyssey transaction is significant in terms of a harbinger of activity yet to come.
Doc Fix Survives, Medicaid Ehanced Match Doesn’t
In another procedural vote on the revamped Jobs bill in the Senate, Democrats fell short of mustering 60 votes to end a Republican filibuster, effectively ending for now, legislative efforts to extend unemployment benefits. The vote count was 57 to 41 to continue debate. Dying with the extension of unemployment benefits are a series of pro-business tax cuts, tax increases on domestically produced oil and on investment fund managers as well as the extension of the enhanced Medicaid match provided in the Stimulus bill, set to end December 31 of this year.
In an attempt to keep the bill alive, Senate democrats removed the provision related to Part B/physician fee schedule cuts and crafted a smaller, temporary fix (see my posts from last week on this same subject). This separate “temporary” patch provides for a 2.2% increase in the Part B fee schedule and delays any cuts to physician fees until November 30. Prior legislative efforts deferred the fee schedule cuts, pegged at 21%, until June 1 of this year. This past week, CMS began paying claims incurred after June 1 at the reduced fee schedule rate. In response to an enormous push-back from physicians and the health care community in general, the House passed this temporary Senate measure, sending the bill to the President for signature. Assuming the President signs the bill, providers that have submitted claims for services provided after June 1, will have to re-submit their claims to assure correct payment, including the modest increase of 2.2%.
What’s next (as I have been asked routinely over the past two-weeks)? Is the enhanced Medicaid match extension dead? Legitimate questions, no doubt. In brief, here’s my take or EWAG (educated, wild-assed guess).
- Typically, when legislation such as this stalls, there is a single, two-ton elephant that needs to be circumnavigated or removed from the room in order for things to proceed. In this case, there are three elephants in the room. First, and larger in size than the other two, is the upcoming mid-term elections. The current “tone” in electoral politics is not good for Democrats and decidedly, anti-incumbent, anti-big government, and bail-out weary. Any legislation that looks-like and feels-like a bail-out is perceived as poisonous by incumbents headed toward a November election date. Even seats once believed safe, are up for grabs and some, such as Sen. Boxer in California and Sen. Reid in Nevada, are considered bell-weather contests marking a shift in electorate sentiment (assuming losses on the part of Boxer and Reid). The second elephant is the rising federal debt, now at $13 trillion and climbing. This elephant is a cousin of the first and the Democrats are beginning to feel ownership, correctly or incorrectly, of this elephant. With the EU struggling with an enormous debt load, principally due to burgeoning social welfare programs and a slow economy, economists, the Fed, and investment rating agencies such as Moody’s, are warning that the U.S. debt load could pose the same level of risk to the economy as is present across much of the EU. In fact, the U.S. debt load is perilously close to the value of the GDP; an indicator of a level of negative economic wealth (more debt than assets). Saving an economic lesson for later, the rising debt load is potentially crippling in so many ways to a recovering economy (enough said for now). The third elephant is the moribund U.S. economy, incapable of soaking up large additional amounts of debt and virtually non-responsive to the government’s deficit spending in the form of targeted stimulus. Simply put: The Stimulus and the continued bail-out packages coming from Washington have done virtually nothing to stimulate recovery while adding billions to the debt level. Arguably, the instability and the spending levels have hurt the recovery more than helped. With these three elephants present today in the House and in the Senate chambers, very little prior to November (mid-term elections) can get done and what will get done will be temporary in nature (the doc-fix for example).
- I’m not sure that the enhanced or extension of the enhanced Medicaid match is dead but it is definitely, on life-support in its current form. It seems that the tone of this Congress now is to avoid issues that include big price tags unless such an issue is immediately pressing (the doc-fix) and can be pushed every so slightly, down the road, but just by a bit. The problem here is that many states are stuck with June 30 fiscal years and/or balanced budget requirements. For these states, the uncertainty of additional Medicaid match dollars from the Feds requires establishing a plan that includes cuts, reimbursement and benefit levels combined. The real devil in some cases, is for states that have expanded their Medicaid programs via the use of added match funds through the Stimulus, as the expansion components cannot be cut by law. The additional funds via the Stimulus bill came with “golden handcuffs”, requiring states that used the funds via expansion, to maintain these services. In short, Medicaid is a real mess but frankly, that is nothing new given how ridiculous its financing provisions are and how “federal” money hungry the states have become, selling their fiscal stability souls for additional federal funds and then shifting budget problems elsewhere, hoping new or additional federal money would continue, bailing out their current spending sins.
- The logic of once again deferring the Part B cuts, now to November, is to buy Congress time to craft a permanent solution. Anyone who buys this rhetoric needs professional counseling. This issue is nowhere close to a permanent fix as such a fix requires political willpower (non-existent today), a revisit to the recently passed PPACA where the budget numbers are already out of whack, and finally, a commitment to spend new money as part of the solution. Fixing the problem means abandoning the flawed sustainable growth formula, recasting the actual costs associated with the PPACA (estimates of deficit reduction relied heavily on unsustainable and impractical Medicare cuts), and finding new money within the budget, deficit or not, to create parity and stability within the Part B fee “world”.
Senate Doubles Back on “Doc Fix” Legislation
After a mid-week roadblock was established on a procedural vote all but derailing the American Jobs and Closing Tax Loopholes Act and the integrated provisions that included a “doc fix”, the Senate doubled-back on Friday and passed a separate measure that patches the pending cuts (21%) in the physician fee schedule set for June 1. The latest temporary measure stalling cuts as required by the sustainable growth formula underpinning the current Medicare reimbursement calculations for Part B services (physician fees, therapy rates, etc.) expired on June 1. In the interim, in anticipation of another patch to the cuts, CMS directed its fiscal intermediaries to “hold” or pend claims after June 1. The Senate legislation now must return to the House where as of today, reception as indicated by Speaker Pelosi is not likely to be “warm”.
The Senate’s fix calls for a 2.2% increase to the current fees (non-cut) through November 30 at a price tag of $6.4 billion. Integral within this temporary measure are funds to not only augment the physician fee schedule but to also impute the same increase to other health care services tied to Medicare Part B such as outpatient therapies. Come November 30, Congress will have to either have a more permanent solution in-place or additional temporary measures will be required.
Physician reaction was as expected; frustration and mixed anger. Physicians continue to grow more hostile toward Congress’ strategy of temporary payment fixes, calling for a revamp of the convoluted and antiquated formula known as the “sustainable growth formula”, tying Medicare reimbursements under Part B to economic growth in proportion to overall Medicare outlays. During health care reform discussions and in the initial Senate version and subsequent House version of the Jobs and Closing Tax Loopholes Act, longer term fixes to the fee schedule were integrated with larger costs. Politicians from both parties, worried about rapidly increasing deficit levels, systematically gutted these longer-term measures to the point where no legislation addressing the pending cuts was in place until late Friday.
The lengthy delay in addressing the pending cuts of June 1 caused CMS to extend a “hold” on claim adjudication, effectively stalling claims from June 1. On Friday however, CMS directed its fiscal intermediaries to begin adjudicating claims using the discounted fee schedule. In short, claims from June 1 will now be processed with a 21% reduction. CMS’ reasons for starting to pay claims at the discounted level are two-fold: First, longer delays in adjudicating claims will produce a significant back-log in claims, headed into the 4th of July holiday period; and second, the Senate legislation must return to the House for passage and preliminary indications from the House are that passage in its current version is unlikely. Claims can ultimately be re-processed once a permanent (or more lengthy temporary) fix is reached however, such re-processing is neither quick nor without additional work on the part of providers and CMS’ intermediaries.
There is no question that physicians as well as other provider groups are growing tired of Congress’ inability to resolve the Part B fee schedule issues. With health care reform a less than fully embraced law and policy analysts and economists pushing Congress on rising deficits, the political willpower to address Medicare issues involving “new” deficit spending is almost gone. In fact, many policy analysts and economists, including myself, have consistently pointed out that Congress lacks the political will to pass along the steep Medicare cuts imbedded in the PPACA and integral to its claim of “deficit reduction”. The “doc fix” saga is clear evidence of Congress’ inability to live up to the spending cuts it created under the PPACA.
Senate Sets Roadblock on Jobs Bill: Impact is Felt for Doc Fix and Medicaid Funding
Yesterday the Senate, via a procedural vote, set a roadblock on the continued track toward passage for the American Jobs and Closing Tax Loopholes Act. The original version, re-crafted by the House to lower the price tag and then sent to the Senate, found limited traction on Wednesday. Oddly enough, the House version effectively trimmed the original Senate version and yet, even when fiscally re-shaped, it could not garner support in the Senate, the source from which it originated. My read is that Senators, since the shaping of the original bill, have watched political winds shifting away from support for government bailouts, subsidies, and deficit spending initiatives.
What happened is a bit confusing for people unfamiliar with the parliamentarian rules and procedural machinations of the Senate. In order for the Bill to come to the floor for a vote, sufficient votes (60) are required to close debate on the legislation. Without the 60 vote total, debate can continue endlessly and lead into filibuster, effectively killing the Bill as it stands. Yesterday’s vote showed a suprising lack of support among key Democrats such as Wisconsin Senators Feingold and Kohl. Republicans were effectively unified in opposition. As of late yesterday, Senate Democrats scrambled to re-craft yet another, scaled down version that at a minimum, would contain an extension of unemployment benefits and certain key tax measures.
Analyzing the issues, the Bill in its present shape has significant fiscal problems. First, the diversity of the issues and spending priorities within the legislation create a lack of transparency which today, is politically repugnant to voters. Second, much of the Bill appears politically as a continuation of federal bail-out spending. Third, health care reform remains unpopular politically and Senators, wary of the “doc fix” price tag and its ties to an unresolved health care reform matter, don’t want to get any more negative fall-out regarding the costs of health care reform.
The implications for health care at this point are a bit unnerving. Many states have already laid budgets assuming a continuation of the Medicaid stimulus support, set to end December 31. Without continuation of the expanded Medicaid match, many states will need to recast budgets, integrating major spending reductions. Second, the “doc fix” issue also impacts a number of other health care services such as Part B therapy rates which are tied to the physician fee schedule. (See my related posts regarding Part B cuts and the American Jobs and Closing Tax Loopholes Act). Without a fix or another delay of the pending cut (21%), physician fees and other Part B services such as therapy will be cut.
My impression is that Congress will scramble for the next week, attempting to unravel the bill and take on certain issues ala carte. For example, I believe that unemployment benefits will get extended as in Washington, especially for Democrats and their union supporters, failing to do so is political suicide. I believe Medicaid and the states will get their extended match but perhaps, more incrementally, maybe with an initial extension end date of March 30, 2011. Finally, I think the “doc fix” issue will get delayed once again; another temporary stay of execution. The doc fix may be the most politically difficult issue to deal with as its price tag is large and nearly every policy analyst and health care economist point to the need to address the underlying problem of the sustainable growth formula versus the current approach of pushing the inevitable to future dates via current infusions of new deficit dollars.
RUGS-IV Still In Limbo
As the Senate is set this week to take a vote on the American Jobs and Closing Tax Loopholes Act (see my related posts), a key provision within the legislation having to do with implementation of the SNF payment system known as RUGs-IV remains in limbo. The PPACA (health care reform bill) required implementation of a new standard resident assessment instrument known as MDS 3.0, effective October 1. Under Medicare, the resident assessment triggers the PPS payment category corollary to Resource Utilization Group or RUG for short. A provision within the American Jobs and Closing Tax Loopholes Act would require CMS to implement an updated PPS payment system, RUGs-IV concurrent with the changeover to the new assessment instrument, effective October 1.
The difficulty that occurs without simultaneous implementation of RUGs-IV is that CMS has to create a “bridge” payment methodology, ultimately phasing-in the new payment system. This bridge payment system effectively changes in certain provisions unique to RUGs-IV such as concurrent therapy and look-back periods to model a hybrid payment for MDS 3.0. As the Senate has not yet acted on the Jobs and Closing Tax Loopholes Act, CMS is preparing for an interim period and thus, a bridge payment strategy. The full-phase in of RUGs-IV would not occur potentially until October of 2011. During the interim year under the bridge payment, CMS will use modified payments and then, re-process claims once RUGs-IV is implemented. The modified payments are effectively RUGs-IV payments that are processed using the RUGs-III system, as modified under the PPACA. Of course the peril for SNFs during this interim period lies in the possibility of carrying a receivable to Medicare (payments are less than what they actually would be under RUGs-IV) that ultimately is re-processed correctly, without interest. Alternatively, a facility could have a balance due once re-processing occurred but this situation is less likely.
At this point, the “ball” is in the court of the House and the Senate. CMS has indicated that it might take as long as six months to establish a hybrid payment system that correlates RUGs-IV categories to an interim payment system suitable for use under MDS 3.0. The alternative of course is to have Congress legislate the full implementation of RUGs-IV by October 1. Oddly enough, it was Congress that caused this confusion by delaying the implementation of RUGs-IV for a full year under the PPACA.
CMS is holding a series of three national conference calls regarding MDS 3.0 transitions and the RUGs-IV/RUGs-III interim payment issues. The first is set for June 24th at 1:30 P.M. Eastern time. Feel free to e-mail me for registration information.
American Jobs and Closing Tax Loopholes Update
Prior to the Memorial Day recess (holiday), the House passed its re-shaped version of the bill. The re-shaping primarily involved spending constraints; reaction to wide-spread criticism (public) of current (and recent) Congressional deficit spending binges as well as a realization that fall elections draw ever closer. Specifically, what the House did was:
- Abandoned any additional extension of the added FMAP (Medicaid match) from the Stimulus Bill – deadline remains December 31, 2010.
- Took up the “doc-fix” issue separately, passing a two-year fix to the pending cuts (still set for June 1 as the Senate has yet to reconvene and address this issue).
- Made the effective date of the RUGs IV implementation October 1, 2010.
What now occurs is the revised legislation heads to the Senate for review, modification, approval, etc. As the Senate is not set to reconvene until June 7 (another week), the issue (once again) of physician fee schedule cuts and corresponding Part B cuts in therapy, etc. heads into limbo. Congress has taken repeated temporary measures to stave-off these cuts while it works to a more permanent fix and it is likely, another emergency, temporary “stay” to the cuts will be forthcoming (I doubt the Senate and House will come to agreement on final legislation during the ensuing two to four-week period). As in the last go around on a “cuts deadline”, CMS has instructed its intermediaries to hold claims open for the first ten days of the month in anticipation of some direction from Congress.
Regardless of the legislative machinations yet to occur between the House and the Senate, real fiscal issues are at play. The states are in desperate need of continued financial assistance for their Medicaid programs albeit, even a six-month extension of the FMAP will only result in a bandage change applied to a gaping flesh wound. State budgets are predominantly in a horrible stay of disarray, awash in deficits and limited in their options for additional revenue via taxation. The slow recovering economy does not foretell an anytime soon switch in fortunes for the states; revenues will continue to lag until jobs and thus, corporate and personal income fortunes reverse. Medicaid, as I have written before, is an awful shell game. To garner additional FMAP that the states desperately need requires additional program expansion and spending – funding that the states cannot afford to continue without more federal dollars. At some point, with the national deficit now over $13 trillion and rising, the Feds will need to pull the plug on all of the deficit spending, “bail-out” programs that are unsustainable (like added FMAP) and the recipients will have to “face the concessionary music”.
The “doc-fix” is and has been, a major policy issue and boondoggle. The problem is the underlying sustainable growth formula that is used to set physician (and other Part B) reimbursement rates. Fixing the formulaic issue is what needs to occur but for the time being, adrift in a sea of health policy debacles courtesy of a misguided reform bill that is now law, Congress is effectively hamstrung. The political peril of allowing physician fees to plummet by 21% is balanced opposite the political peril of additional deficit spending, especially on health care, immediately prior to a fall election cycle. Health care today is a major political issue and front and center in this issue are claims made that the PPACA (reform bill) would reduce the deficit, primarily by making Medicare more efficient (cuts). Adding back new monies to physicians and other providers under Part B is fuel for certain economists, deficit hawks, etc., who all publicly denounced the PPACA deficit reduction claims as unattainable, unrealistic (Congress won’t have the nerve to sustain the cuts), and of course, based on funky math (counting savings from cuts while creating new entitlements).
I believe this may be the shining example of a “political pickle” for Congress…
American Jobs and Closing Tax Loopholes Act – HR 4213
Funny title that is rather misleading given the gravity of the health care/post-acute care provisions that are included in this bill. As is the case in Washington, especially these days, important health care provisions not addressed in the PPACA are coming forward in other bills; particularly bills involving unemployment benefits and COBRA benefits, etc. Such is the case in this rather large expenditure bill which by title, is aimed at extending unemployment benefits, creating tax deductibility for COBRA premiums and removing a host of tax loopholes or tax deductions as some may call them.
Imbedded within the bill are a series of important health care related provisions. Briefly summarized, the provisions are;
- A six month extension of the additional federal Medicaid match originally provided under the Stimulus bill. The current added match is set to expire on December 31. The extension provided under this bill would continue the match through June 30 of next year. Fundamentally the issue here is the feds trying to provide a softer cushion or landing area for the states given the ramp-up in Medicaid spending that is coming under the PPACA, the current economies of most states (poor) and the harbinger of pending Medicaid cuts most states will require to keep their programs afloat. While this match is likely a good thing in the interim, recall that it is in effect like giving a crack addict more crack. Under Medicaid, the additional match comes only with additional state spending; spending that most states cannot afford without the additional federal money. Unless the federal money is continually extended in some shape or form, the states will likely face the prospect of cutting their Medicaid budgets at some point, regardless of any economic recovery.
- A provision that staves off any cuts to the physician fee schedule until 2014. This doc-fix element includes increases in 2010 (for the balance of year) and 2011 with no increase specifically factored for 2012 and 2013 although, if spending on physician care remains (during this period) within Medicare spending limits, an increase may occur. In 2014, the physician fee schedule would return to the current law based on the sustainable growth formula (per CBO, a cut in 2014 of 30%). In addition, since Part B therapy rates are tied to the physician fee schedule, the rate cuts that are pending would be automatically fixed (in concert with the doc-fix) and in actuality, increases in rates would be forthcoming. Physician fee-schedule cuts and the issue of physician fees being tied to the antiquated sustainable growth formula was a matter of contention during health care reform debate. The House had passed a broad, permanent fix but the Senate failed to act. The Senate desired something more temporary and less costly. The final legislation as passed (PPACA) didn’t address the matter at all with the exception of counting the savings from the projected cuts as part of the financing elements that produced the “budget deficit reduction” effect. In other words, Congress used the projected savings from the cuts as means of creating a positive financial projection from the CBO. Most policy analysts and economists have claimed all along that one of the significant “risks” with the PPACA positive projections lied with the fortitude of Congress to sustain the significant Medicare cuts contained in the bill. This measure is likely to create renewed calls that Congress is incapable of sustaining the Medicare cuts and in actuality, and as I have written multiple times before, the PPACA is nowhere close to deficit reducing.
- The bill also contains a provision requiring CMS to implement RUGs IV by October 1, in concert with the roll-out and implementation of MDS 3.0. This is a good thing for SNFs. Without RUGS IV going hand-in-hand with MDS 3.0, there would be no case-mix payment system that matched the new assessment tool. RUGs III is correlated to MDS 2.0. The end result would likely be comedic and tragic all at the same time as SNFs would have to complete the new MDS and try to correlate payment back to a case-mix system that didn’t match the new assessment tool. I, and others, envisioned payment snafus abundant and the work to sort it out come RUGs IV roll-out in 2011, the responsibility of the SNF.
The Apex Healthcare E-Newsletter (my organization’s newsletter) for May was just released and posted yesterday and in this issue you can find additional information regarding this topic (the physician fee schedule fix and RUGs IV) http://apexhealthcareconsultants.info/category/may-news-2010/
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