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”.

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