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SNF Outlook: 2013

As luck would have it, work interfered with my plans to have all of the industry outlooks for this year complete and published by February 1.  Good news: Ground work is done now I just need to get to the writing and editing on a consistent basis.  With any luck and a bit of fortitude, I’ll have these all done by Valentine’s Day.

Below is my and my firm’s summary of what SNFs can expect in 2013 and into FY 2014 (governmental FY starts 10/1/13 for 2014).

Summary Comments: From a valuation stand point, SNFs are still seeing strong (low) cap rates and solid pricing per bed, as reflected in the M&A arena.  This seems a bit incongruous given the strain on revenues current and forecasted under Medicare and Medicaid.  Additionally, we are seeing upward movement in variable expenses on a PPD basis as food inflation and some wage pressure is creeping into operating costs.  Likewise, we think overall comp inflation is forthcoming if for no other reason that the continued phase-in of the PPACA and its provisions impacting employer sponsored health insurance plans.  It will be interesting to see how larger providers and provider groups respond over the next six months or so. As of today, we don’t have a clear read on how providers will handle their health plans (keep, drop, alter, etc.).  Literally, the “bag” is muddled and mixed. On the positive side, we are seeing some interesting trends among larger provider organizations and larger SNFs toward enhanced quality improvement foci and activities around bundled payment demonstrations, etc.  Those that have pad attention seem to have set a forward course to be engaged in the broader “new world” order in healthcare, focusing on their care transitions, their referral relationships (upward and downward), their unnecessary drugs, etc., developing a more data driven, outcome approach to managing their operations and thus, improving their quality.

Medicare Part AThe outlook summary on Medicare, while it could cover multiple pages, summarized is BLEAK – at least as far as rate is concerned.  The good news is that Medicare will remain a far superior revenue source than alternatives such as Medicaid.  The bad news is that Medicare as an overall revenue source and sustainer of margin is weakening.  The threats and realities are obvious.  First, Sequestration cuts are not off the table and assuming, which seems the prevailing wind, Congress’ content to leave all but Defense cuts on the table, SNFs will see a rate decrease in 2013 and an outlay reduction over the upcoming 10 years of $65 billion. Should this scenario play out, SNFs will see a case-mix adjusted Medicare revenue PPD reduction averaging 2%.

Digging deeper, a number of negative Medicare policy issues remain beyond the looming spectacle of Sequestration.  First, the current Congress is perhaps the most passive when it comes to doing anything and more so, digging direct into programmatic elements within Medicare.  This means that it its hard to see Congress stepping in or up to restore spending reductions for a programmatic element such as SNFs.  Couple the political reality of the times with the fiscal realities of Medicare and entitlement spending and the prevailing and crystal-clear trend is “less” not “more”.  Medpac has called for complete renovation of the SNF PPS and rebasing of rates, stating that SNFs are overpaid and in many cases, abusing the current therapy RUGs to garner higher rates.  Industry arguments concerning the need for higher Medicare revenues to offset Medicaid losses are de facto, played out on the Hill.

Bottom-line: Consesus in our group is for rates in 2013 and then into federal FY 2014 to go down by 2.5%, case-mix adjusted average (meaning more impact felt for higher therapy case-mix and less for a more balanced case-mix on a PPD basis).

Medicare Part B: This analysis is simpler than Part A.  The industry dodged one bullet in December as Congress passed the current sustaining legislation that remedied the immediacy of the Fiscal Cliff, applying another twelve month patch to SGR formula/physician fee-schedule, evaporating the pending cuts that apply to any Part B service connected to the fee schedule (not just physicians).  That is the good news.  The bad news is that CMS continued the MMR process for cap exceptions, left the caps intact and changed, effective in June the MPPR (Multi Procedure Payment Reduction) factor from 25% (applicable to SNFs) to 50%. Again, based on an SNFs utilization of Part B and the types of therapy provided to its caseload, the revenue impact can be fairly steep.  On average, we calculate a 7% reduction but for some scenarios that we ran, the reduction can be double digit.  Providers will need to watch scheduling of multiple therapies and treatment patterns closely and make adjustments where possible, to mitigate the revenue reduction.

Compliance: SNFs will continue to face increasing compliance and survey challenges with respect to billing and care delivery.  Without question, the industry remains tightly regulated and unfortunately, the regulatory process as convened and managed through various state governments remains fraught with inconsistency; inconsistency in application of various codes, inconsistency in interpreations and inconsistency in enforcement. As a major practice area within my firm is dedicated to compliance, we see challenges and survey/certification inconsistency daily.  We also see providers who somewhat impose their own peril by failing to stay current and to adopt a “clear-headed” approach to the industry realities.  Below are the compliance challenges and issues that we see, split between billing and survey/certification, for 2013.

  • Billing: Medpac and the DHHS OIG both have publicly stated that SNFs and their Medicare billing practices demonstrate consistent over-billing in relationship to care provided or required by certain types of patients, primarily those admitted for rehabilitative therapy.  By estimates, the total amount is $1.5 billion of unjustified billing (over-billing).  Stopping short of labeling the findings systemic fraud, DHHS recommended increased audit activity, targeted fraud investigations where the practices seemed consistent within certain organizations, and ultimately, changing the reimbursement mechanisms for therapy RUGs.  The latter in our estimation, will take time but we believe that CMS will continue to move toward re-basing and re-calibrating a modified PPS system for SNFs.  The take-away here is SNFs beware, especially of your case-mix.  We are consistently advising, and have for years, that SNFs need to pay close attention to their Medicare revenue PPD and their billed RUGs distribution.  If there is a skewed trend toward too high of utilization of upper RUG therapy categories, something is wrong.  Benchmark the facility’s distribution and revenue PPD against the region and the locale (easy to do).  If the facility’s distribution is out of kilter, investigation is required.  We also recommend periodic external audits of facility billing practices, matching RUGs billed to the MDS to the documentation of care delivered.  The over-billing, over-utilization of therapy RUGs is a targeted focal area within the OIG workplan and SNFs need to be acutely aware of the False Claims Act consequences for over-billing.
  • Survey/Certification:In addition to the enormity of survey/certification dimensions that already exist for SNFs, some new twists are in-play.  The first that providers need to pay close attention to is unneccessary drugs and particularly, psychoactive medications.  Surveyors are getting directed guidance from CMS to crack-down on the amount and frequency of psychoactive medication use in the SNF population as well as the misuse of medications with Black Box warnings/medications used for inappropriate therapeutic reasons, not intended by the FDA approved usage guidelines.  For most SNFs, this is a big risk area.  With the recent flu outbreak nationwide, we are seeing enhanced survey activity focused on infection control and immunizations.  Again, this is weak area for many SNFs.  Even facilities with solid immunization programs risk peril if they are not using proper isolation, precaution and surveillance practices.  We have seen of late, some significant citations (IJ, G and higher levels) arise from inadequate infection control programs, even where immunization efforts were good.  Finally, while we aren’t yet seeing much directed enforcement or survey activity on facility Quality Assurance programs, this year (FY 2013/2014) comes with new requirements for facilities to have in place, a QAPI (Quality Assurance Performance Improvement) process.  We consistently find that facilities are unaware of this requirement and worse, haven’t yet heard about QAPI.  Note: Readers who want more information on QAPI, e-mail me (contact is on the author page) or comment to this post, providing me with a current e-mail address.  I have resources that I can forward to you.

Medicaid: Little in terms of reimbursement changes lies ahead for the industry, save a consistent trend of states converting their Medicaid programs to managed care.  In states where this is occurring, providers face less rate challenges in terms of rate reductions more, programmatic structural changes in terms of billing requirements to MCOs, enrollment issues for their MA residents, and new rules regarding prior authorizations, continued authorizations and formulary changes for prescriptions.  This presents a unique hodge-podge of similar but different issues state to state.  Each state has nuanced differences when they implement managed Medicaid and each state has unique networks and in some cases, different MCOs.  From a strict financial outlook, Medicaid remains structurally problematic and will for the next years.  State budgets are far from flush and with the loss of enhanced FMAP last year, most states are far from capable of pushing any more funding into Medicaid.  The prospects are mixed for most states with regard to Medicaid Expansion under the PPACA.  While some states welcome expansion as it theoretically brings a ton of federal money in the form of 100% funding of “expansion”, others are leery, questioning the Federal government’s ability to sustain the funding commitment.  Lack of clarity regarding current federal budgets, debt ceiling and entitlement reform only augments state hesitancy to embrace expansion.


February 8, 2013 - Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , ,

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