I am often asked in my profession to “opine” on “what’s going on in this industry or that industry”; give us the trends. As a matter of fact, this Monday past I spent an hour with a principal from a hedge fund wanting to know “what are the major issues” in the seniors housing and healthcare industry. His fund needed an industry perspective on what is happening or likely to happen so that they could position their investments strategically and hopefully corollary to the current trends.
I won’t profess to have a crystal ball but I do spend a great deal of time reading publications, working with providers, investors, developers, etc., and listening to trade associations, politicians, and people working in the industry so suffice to say, my insight is generally pretty darn accurate. In other words, I accumulate and validate a whole lot of data and when I see and hear the same things repeatedly and validate the information, I believe a “trend” is solid. I’ve compiled my Top Ten for 2009 and early 2010 (and perhaps a bit longer) for the SNF Industry and listed the same below. I’ll do the same for each seniors housing and healthcare segment I cover in upcoming posts.
- MDS 3.0: The reality of RUGs refinement is here and it means big reimbursement changes for therapies in particular. Many in the industry and particularly contract rehab providers aren’t really prepared and as in all cases with Medicare reimbursement, you snooze you lose – dollars.
- Probes and RACs: The Feds are searching for money and they believe that many providers, especially those running higher acuity case mix and strong Medicare census are billing incorrectly, over-charging, etc. This recapture activity will continue to heat-up and the goal is to recover Medicare dollars.
- Medicaid: The States have budget woes and even though the Feds will kick-in additional dollars including stimulus funds, don’t expect any windfalls coming via Medicaid. In fact, many states are looking at reducing inflationary increases, raising bed taxes or other provider taxes and pushing through only paltry or meager (if at all) increases – way below the inflationary trends in the industry. The bottom-line is that the Medicaid losses (shortfalls) will grow wider over the next year and longer.
- Medicare: Aside from recovery audits, probes, MDS 3.0, etc. the wind of spending reductions in Medicare for nursing home reimbursement is blowing hard. MEDPAC and the Congress have come straight out and stated that they believe the industry has been riding a gravy train via Medicare and that they (CMS and Congress) have intentionally let the “surplus” funding via rates go on long enough. Succinctly stated, they know that Medicare has been funding Medicaid shortfalls and that will end. Current proposals and discussions include reducing or freezing the market-basket increase, providing a market-basket increase but re-basing the rates and/or combinations of both. In short, with the healthcare reform movement in full motion, payment for healthcare is front and center and Medicare is an enormous target – for all providers. The outlook is bleak for this program continuing to be a lucrative, long-term payment source for the industry – certainly not as lucrative as it has been.
- Person-Centered Care: A wonderful concept that is turning into a Frankenstein monster via regulators and once again, less than clear interpretations offered via CMS. The initiatives with person-centered care that will come forth via survey activity are virtually impossible to comply with and so nebulous that enormous survey and compliance inconsistency will occur. The premise is good but with facilities primarily relying on Medicaid and a certain dwindling Medicare payment as their financial resources, giving every resident what he/she may want when and how they want it will be impossible financially and highly impractical from an operating standpoint. Being boldly honest, environments can be comfortable, nurturing and safe but a nursing home was never meant to be the same as “someone’s home”.
- Regulations and Surveyors: A topic that likely will never leave a top ten list in any year is compliance. The industry is overrun by nonsensical and increasingly vague regulations. The system is wildly variable and consistency is far from attainable. The system does little to promote quality and clearly, based on what I hear and see, promotes increasing numbers of highly qualified staff to leave – especially Directors of Nursing. In a period when nurses are in short supply and everyone believes that quality needs to be increased, using an outdated system untied to measurable and demonstrable outcome statistics, relying wholly on interpretations (reasonable or unreasonable) from “point-in-time” inspections and from point-in-time inspectors that may or may not have any direct industry experience is frankly, ludicrous. Any system that essentially finds guilt, levies fines and provides only an expensive and bureaucratic methodology for arguing whether guilt actually was present at all, is destined to fail in terms of achieving its intent – improved quality and consistency of care. During this upcoming year or so, where the industry will certainly see declining reimbursement and increased audit and recovery activity, there appears no reduction on the horizon for the endless stream of regulatory insanity that comes from Washington.
- Aged Physical Plants: With the cost of new construction being as high as it is and many states using some form of CON (Certificate of Need) or other bed-cap provisions prohibiting increases in new bad capacities, much of the industry is sitting on physical plants that are decades old. Combine the age of the plants with Medicaid and Medicare reimbursement programs that no longer allow any realistic hope of capital cost recovery (exception programs for these costs were abandoned years ago), there has been little incentive for providers to modernize their physical plants. The problem however is that the Feds continue to pass unfunded, regulatory mandates in the form of new Life Safety Codes (for example, requiring all buildings to be fully sprinkled by 2013) as well as other environmental regulations (see Person Centered Care) that place the provider with an aged plant at risk for compliance problems. The primary issue here is that without any recognition of the costs to modernize the older physical plant on behalf the Feds, the revenue flows to update an older plant are scarce at best. Another complication at present to this problem is the tight capital markets. Lenders are shy to the industry and capital is scarce and where accessible, prices and terms are steep. If, and such is the case, capital from borrowing is either too expensive or too difficult to access, another source for plant updating is “off the books”. While I believe capital will become more accessible to the industry in the near and intermediate future, the economic outlook via rates from Medicare and Medicaid is not rosy thereby still making borrowing for many a tough path to access (lower revenue from reimbursement reduces coverage levels for new debt).
- Labor: This is an industry where 60% to 70% of operating costs are associated with labor. Reimbursement has not kept up with the increasing costs of labor, the demand for additional staff and types of staff on behalf of patient advocacy groups and regulators, and the increase in regulatory requirements that burden staff, most directly, Directors of Nursing. Turnover, even in a down economy remains a problem and now the industry is beginning to see real shortages (beyond what has been seen before) in Pharmacists, Physical Therapists, Physicians and Advance Practice Nurses. To attract and retain this group of professionals, let alone all other skilled professionals, wages, perquisites and benefits have inflated dramatically. With forecasted actual cuts in reimbursement and/or freezes in rates, the cost of labor will climb ever higher as a percentage of overall revenue. Additionally, less resources means less dollars available to pay for critical labor that is presently and will remain, in high demand.
- Liability: All of healthcare faces a liability crisis in the United States and the SNF industry continues to see its share of problems. Trial lawyers have “wised” up and are becoming very adept at watching survey results, the five star rating reports put out by CMS and other sources of industry information. Compounding the problem, there are still too few major liability carriers willing to write business in the industry space and as a result, competition lacks and premium pricing remains artificially higher than perhaps it should. While more states have moved to place caps and collars on malpractice and liability claims, the whole of the healthcare liability/malpractice issue needs to be addressed with serious and substantive tort reform out of Washington if the industry is to garner any permanent relief. With a Democratic President who won election supported by the Plaintiff’s Bar and a Democratic Congress that has pandered to this same group, real tort reform necessary to reduce the liability threat level is not likely forthcoming from Washington this year or the next.
- The Federal Government: Awash in the healthcare reform debate, Washington and the Feds have drawn the bulls-eye around the U.S. healthcare industry. In every corridor of power, debate across both parties is centered on reducing and controlling, healthcare costs. While this may be a good thing globally, the Feds have shown no ability to exercise discretion and/or common sense in reforming an overly bureaucratic and inanely regulated industry instead, focusing on politics and poorly crafted budget driven policy as a means of “patting themselves on the back” come election time. There is no question that the Feds will focus on cutting spending via changes in reimbursement while continuing to craft more inane and useless regulations as a means of achieving some “reform” agenda. In all of my years in the healthcare industry, I have never seen a time that is more concerning and frankly discouraging, when viewed in light of the role the Federal government is playing in healthcare. I fear that this trend will get worse before it gets better.