Current Policy Trends to Watch

In response to a recent series of questions from multiple segments of the health care and post-acute industry plus my own experiences within the landscape of providers and policy makers, I’ve summarized a current list of policy trends “pay attention to”.

Medicare Cuts and the Super Committee: Nothing seems to loom larger or cast a bigger shadow than the prospect of outlay reductions from Medicare translating into rate cuts for providers.  Here is the core everyone should focus on.  First, the recurring “Doc Fix” issue that Congress has repeatedly kicked down the road time and time again.  Let the current patch dissolve and voila, a big chunk of spending disappears (a 30% rate cut on January 1) – albeit with enormous likely consequences in terms of patient access, service reductions, etc.  Fix the problem permanently or more likely substantially, and additional non-budgeted spending occurs – a problem.  Presently “on the table” so to speak is a recommendation from MedPac to fix the problem via repeal of the Sustainable Growth Rate formula (the trigger for the current “cut” scenario) and replace the formula with a schedule of Physician Fee Schedule updates over a ten-year period.  The updates would target primary care physicians at the expense of specialists who would experience a 5.9% cut across a three-year period, followed by a fee schedule freeze.  Altogether, this is a fix but one that comes with new spending if no additional changes are made.  Likewise, the probability of this being a workable compromise within the medical community is minimal.  There remains a side problem to this whole mess and it relates to the number of other Med B services tied to the SGR such as outpatient therapies.

Back to the Super Committee and the prospect of triggered automatic cuts to Medicare.  The Committee is charged via last summer’s debt ceiling deal, to arrive at a  deficit reduction of $1.5 trillion to be implemented over 10 years, sourced either through spending cuts, new revenues or a combination of the two.  Based on what we know today and have consistently experienced over the past year or better, Congress lacks the political will and capability to achieve a consensus on just about any subject.  Given that we are also hip-deep in a political cycle with elections nearly one-year away, compromise on a plan is less and less likely.  If such a plan cannot pass or isn’t available by the deadline, current law requires an automatic cut of $1.2 trillion to occur, balanced across domestic and military spending.  Within the triggered cuts in domestic spending is a 2% cut to Medicare provider reimbursement.  This cut would be automatically on-top of, any other current reductions or cuts to providers that occurred as a result of CMS normal-cycle rule making.  For example, the 2% would be added to the 11% outlay reduction for SNFs.  Interesting to note, Medicaid is unaffected by the automatic reduction trigger.  Boiling this all down, here is what is likely “on the table” and could conceivably play out.

  • Medicaid is likely at greater risk for some kind of spending reduction package as Medicare and Social Security have the greatest political protection.  My best guess, not that this will actually occur or pass, is direct discussions with regard to block grants as an expenditure reduction, broader waivers to States to eliminate current pressure for additional federal support, slow-down of health care reform Medicaid expansion to avoid the additional up-front federal support/funding required by current law.
  • Some levels of additional programmatic delays or even, defunding of the Health Care Reform act.  Congress loves to think of “not funding” a future expenditure as a “cut”.
  • A Medicare realignment approach will be strongly considered.  Under realignment, the Commission could conceivably adopt an approach similar to pieces advocated by Paul Ryan namely, higher retirement/eligibility age, premium support for privatization of health coverage (vouchers) or even some level of excess benefit taxation on wealthier retirees (in effect, an imputation of a premium cost for certain income levels).  This approach is bolder than other less invasive options.

Medicaid: Notwithstanding my comments on Medicaid in the section above on Medicare and the Super Committee, states continue to wrestle with Medicaid deficits and the real prospects of flat or possibly shrinking, federal funding support.  For most states, Medicaid represents the second largest expenditure item within their budgets, just behind education spending.  Federal support levels average in the 50% to 60% range.  Additionally, the majority of states continue to operate on a fee-for-service platform, bearing all of the direct program and care service cost plus the administrative burden.  In a flat to down economic cycle, demand for Medicaid services rises for states as eligibility rolls swell with rising levels of unemployment.  At the same time, down to flat economic periods reduce state income collected via taxation; the principal source of initial, core funding for Medicaid (the FMAP provisions require states to allocate first-dollar, the source of which is predominantly taxes).  The three trends to watch with Medicaid, all of which I am seeing occur regularly, are;

  • A push toward privatization and managed care.  States are looking at ways to better coordinate services, create some competitive bidding models, and reduce administrative burdens.  Managed Medicaid programs have proven succesful in achieving these goals (some more than others).
  • Increasing numbers of programmatic waiver requests to the Federal government.  A major issue with the enhanced FMAP funding that came via the Stimulus Bill is that the funds came with strings attached, primarily a requirement that the enhanced funding be used for eligibility expansion, program expansion, and expanded benefits.  In July of this year, the enhanced funding disappeared leaving many states with an equal or greater structural Medicaid deficit and still lacking a sufficient economic recovery to garner the necessary “state grown” revenue to sustain not just former program levels but program and benefit expansion driven by the enhanced FMAP.  States are increasingly looking to the Federal government today for relief or “waivers” that undo what was put in place to garner the enhanced FMAP.
  • Increased provider taxes and decreased payment levels are a given for the vast majority of states.  I haven’t yet encountered a state Medicaid plan that wasn’t considering or already implementing, some form of provider tax increases and/or reduced payments to providers.  Of most reductions, the target appears squarely focused on the HCBS (Home and Community-Based Services) segment, inclusive of Medicaid waiver programs for Assisted Living and Congregate Housing (Medicaid payments made for supportive, assisted care to a population at-risk of institutionalization).

Miscellaneous/Other: This is a catch-all of five separates trends or issues that in some ways, are inter-related to the Medicare and Medicaid sections and in some ways, separate.  To be sure, I could have expanded this section by a magnitude of ten and still not touched on every policy issue presently at play.  I opted for the five I hear discussed routinely or I encounter frequently in my work.

  • Accountable Care Organizations (ACOs): The first release of draft rules from CMS in March of this year produced a non-starter response from providers.  The initial draft implied a series of cumbersome and poorly defined steps for creation, sustainment, operating and quality measures (65 quality measures required for bonus payments) that chilled providers.  Earlier this year when the draft was released, I wrote an analysis piece on the draft and the implications for post-acute providers ( ).  Clearly, my analysis paralleled the reactions that CMS received regarding the proposed rules.  Just this week, CMS released a revised ACO set of rules and to a fairly large degree, softened and clarified the objectionable elements contained in the March draft.  Summarized, here are the major changes.  Time will tell whether these changes spur additional interest in ACO development.
    • Reduction in quality measures from 65 to 33.
    • Providers are not required to share in the down-side risk and will be able to access earlier, elements of revenue sharing.  The initial version required all original savings returned to Medicare prior to any revenue sharing.
    • Community Health Centers and Rural Clinics will be permitted within the ACO model – originally excluded.
    • Providers will know up-front which patients are likely to be included within the ACO – originally, not known until after the ACO was formed – a removal or limitation on unknown adverse selection/population risk.
    • Inclusion of an Advanced Payment Provision for smaller ACOs, creating initial streams of payment or capital that allows infrastructure investments needed to formulate an ACO to effectively be funded by CMS.  this provision only applies to non-institutional ACOs (physician practices) of $50 million or less or rural based ACOs with Critical Access Hospitals or low Medicare volume rural hospitals.
    • Removal of the mandatory anti-trust review procedure for new ACOs by the Department of Justice and the Federal Trade Commission.  This was a significant gray-area issue in the March draft.
  • CMS Movement to Split Provider Pharmacies from Consulting Pharmacy Duties: In an effort to combat what it believes is a conflict of interest between quality and quantity in the SNF pharmacy delivery/provision process, CMS is proposing a requirement that would prohibit the dispensing pharmacy from also being the consulting pharmacy in the SNF.  In short, one entity would be required to dispense the medication and the SNF would need to contract or employ, a separate consulting pharmacist or group to review and establish, clinical pharmaceutical plans of care.  CMS assumes that this change will reduce the overall number of medications provided and improve care delivery. Perhaps but unlikely.  The true outcome is likely about the same level of prescription use in SNFs and higher costs for the SNF.  Consulting pharmacists and pharmacists in general are in short supply.  For most SNFs, finding a consulting pharmacist separate from the providing organization will be difficult and expensive.  Even more problematic will be finding an independent consulting pharmacist or group with sufficient long-term care and geriatric experience to be of any benefit at all; for residents and the facility.  My take here is that CMS is wary of continued consolidation of institutional pharmacy providers such as Omnicare and PharMerica and is seeking a back-door method for constraining their growth across the post-acute spectrum.
  • Doc-Fix and Sustainable Growth Formula: I touched on this earlier but there is a real side issue to watch and it has nothing to do with the payment issue to physicians.  The SGR and the physician payment formula also encapsulates a whole host of outpatient services tied to this element of Part B.  For post-acute providers, the target to watch is outpatient or Part B therapy rules and payments.  As goes the SGR debate, so goes the prospects for payments for other Part B services such as therapies.  Frankly, any fix to the SGR and physician fee schedule issues needs to occur separate from the other Part B elements presently included within the SGR mess.
  • Home and Community Based Services: What once was a flourishing sub-industry is soon to be no longer.  I touched on this briefly in the section on Medicaid.  This element is at significant risk for post-acute providers as funding is tight and most states are looking at any opportunity possible to reduce their HCBS programs, reign in eligibility growth or receive waivers from the Feds for wholesale discontinuation of certain programs.  The reason?  Institutional care and medical care cannot by law be cut whereas these programs are waiver programs; not presently, expressly required by Federal law.
  • Tighter Regulatory Scrutiny: Somewhat parallel to the pharmacy issue above, CMS is foretelling a renewed vigilance on certain post-acute practices and relationships.  I am reading and hearing all too many comments and stories regarding CMS closely watching and even planning to directly interject via probes and audits ( and perhaps rule-making), relationships between SNFs and contract therapy companies, pharmacies (see above) and SNFs, SNFs and Hospices, and ancillary medical equipment providers (wound vacs, specialized mattresses, fall prevention devices, etc) and SNFs.  The tone here is that CMS believes these relationships exist to optimize profit for the parties and to capture larger elements of reimbursement, not to improve care outcomes or efficiencies.
  • Increasing Demands on Physician Engagement: For most post-acute providers, physician engagement such that the same was tied directly to reimbursement was never a major issue.  This trend unfortunately, is here to stay and will increase.  CMS believes that in Hospice and Home Health particularly, unneccessary services were provided without established medical necessity or justification.  Both home health and hospice now have face-to-face requirements for physician certification of necessity for services/care.  The next phase of this, and I guarantee this will happen in the next year or two, is direct engagement and oversight of CMS in the relationships between physicians and the organizations and the content of the documentation of medical necessity or justification.  Providers need to be vigilant here or face claim denials in increasing numbers.

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