The smallest provider centric benefit (by outlay) under Medicare is also one of the fastest growing in terms of expenditures and agency growth. Lately, it’s arguably become the most controversial in terms of payment and expenditure growth correlated with fraud. In the past year, the industry saw multiple large-scale investigations and ultimately, legal actions and OIG/Department of Justice involvement in no less than a dozen hospice/Medicare/Medicaid fraud cases. The most notable are the cases involving Vitas: Notable for the number and repetition of similar circumstances supporting the fraudulent activity. Virtually every major case emanated via a Qui Tam or Whistleblower trigger and as a result, are indicative to me that more of a similar nature are brewing (given the length of time it takes for a Qui Tam to mature and become public and/or rise to an event where the OIG and DOJ will participate).
In compiling this Outlook, it is terribly difficult to divide the current and disclosed fraud activity from the other issues that are organic to hospice and the reimbursement and health policy issues on the horizon. For this industry segment in particular, the fraud issue truly frames many of the programmatic and reimbursement policy issues “front burner”for 2013 and FY 2014.
Summary Comments: As I have written before (and is the consensus within my firm), the industry is truly stagnant and mature in terms of provider capacity and truly “organic” patient volume. By organic I mean patients that fit the Medicare definition of “terminal” and thus, hospice appropriate. Where we see the fraud cases and peel through the layers, we see systemic enrollment of patients that don’t meet the qualification requirements. This trend is wholly related to too many providers, particularly providers with a business model requiring growing earnings and market share, existing in a “no growth” universe. And while we have seen some episodic and recent data suggesting somewhat higher utilization of hospice as a locale of “death” (see JAMA release of 2/6/13) for cancer patients, the data only corroborates what we have said for years: Where the increases lie are in “organically terminal patients”, typically cancer and typically for very short, intensive stays. JAMA supported the same stating that increased hospice usage is occurring for very imminently terminal patients, after multiple care transitions and ICU/inpatient hospital utilization, when futility is the real precursory reason for the referral. Truly, this data is not indicative of a resounding growth trend or a demand movement. It is affirmation however, of what I have said before: Hospice is a niche in the continuum and while arguably, a superb niche’, it is not widely embraced or understood in the healthcare community and as a result, patients are over-treated and under-referred. The U.S. mentality is more is better and unfortunately, that a cure for whatever ails us is possible and frankly, deserved. In short, we don’t handle death or aging well and thus, we inefficiently use resources to the tune of billions for the very last days/weeks of life.
Given the above comments, the outlook for growth is flat. We can’t confirm nor forecast, any fundamental shift toward more patient utilization of hospice, sans the very short, last days of life pattern noted in the JAMA article. The growth trends that have typified recent statements from Vitas, Odyssey and the like are suspect at best as they are occurring primarily in institutional, post-acute settings such as SNFs and more lately, ALF (Assisted Living Facilities). This trend is the core of “questionable” qualified patients – not truly terminal. Slicing this to what is probably or most likely, a true level of patient volume (those that reside in SNFs and ALFs that are in fact, terminal according to the Medicare definition) we believe reduces the institutional volume at present by half or more. In other words, if we match the Medicare definition of terminal (with a high degree of certainty due to current patient condition, diagnoses and co-morbidities) with the average hospice census (estimated) in SNFs and ALFs at any one point in time, better than half of all patients presently enrolled don’t fit the definition and nothing about their present condition or status, suggests that they will at any time in the near future. How do we know this? Our own clients and experience combined with data provided via Medpac, CMS and the OIG. Factoring this data further along with our assumptions, the industry if right-sized to meet only true demand should shrink by 50% or more! As the bulk of patients enrolled by Vitas and Odyssey (and the like today) are not home bound but institutional bound (non-hospice inpatient or residence), it is logical to conclude that organic demand is far less than the current number of enrollees.
Medicare: Virtually 75% of all hospice days of care are paid for by Medicare and Medicaid (Medicaid about 4%) and moreover, given this ratio Medicare becomes the arbiter of payment rates and off-level rates for private insurance. Briefly, as Medicare sets payment policies and rates, so conform private insurance plans. We rarely see per diem or major payment differences in terms of rate or coverage levels between private plans and Medicare, unless the private source is a true hybrid plan.
Our Medicare outlook is for no increase to a 1% decrease and while Medpac has recommended a market basket update of .5%, the net effect to rate because of the continued phase-out of the BNAF and imputation of productivity adjustment factors, the rate will stay flat if not actually move slightly down. We are forecasting a rate decrease of 2.5% if Sequestration cuts to Medicare occur. There appears to be no real movement of support for rate increases as industry profit margins under Medicare remain in the double digits for for-profit providers and in the high single digits for non-profit providers. For Medpac and CMS, these margins are deemed acceptable if not “high” for the proprietary sector, especially given the meager capital requirements associated with the industry (not brick and mortar, equipment driven).
The biggest wild-card for Medicare is whether steps are taken to realign payment patterns for FY 2014. We see this as only a 50-50 probability at this point. Rate realignment would conform to Medpac recommendations whereby early stay rates would be marginally higher to accommodate the work associated with the initial referral/enrollment process, establishing base-lines, etc. and then taper down after a pre-determined day of stay (say after 14 days or 30 days, though we don’t think 30 is logical). Rates after this initial period would drop and then potentially, ramp-up for the period where death is more imminent to reflect additional care needs pre-death. Why we believe this kind of change is only 50/50 probable lies in the depth of the details necessary for such a system to work. We also know that CMS lacks the back-end capability to administer effectively, such a system.
Of greater probability is some additional certification requirements in the form of documentation and substantiation, additional quality measures and a more directed focus on the part of CMS’ intermediaries on claims review. We also think CMS will provide some insight into where they may go with respect to some future regulatory language regarding the relationships between hospices and SNFs and ALFs. We suspect that there will be survey duties added to the SNF survey and the Hospice survey manuals, with more specific requirements governing disclosure, referral practices, contracts, QA tasks, etc. We believe this will materialize in 2014.
OIG Work Plan for Hospice: As mentioned above, the 2013 OIG work plan includes specific targeted activity for hospices. Repeating from the 2012 work plan is the focus on hospice marketing materials and the relationships between hospices and nursing homes. Delineated in the plan is OIG’s concern regarding inappropriate admissions to hospice coverage arising from nursing homes with a direct concern stated regarding potential financial incentives between the nursing home and the hospice. This focus arises from prior year’s work as well as Medpac reports of nursing home patients admitted to hospice that are non-terminal and/or have questionable diagnoses such as failure to thrive and dementia, non-indicative of imminent death and corroborated by longer stays compared to traditional in-home patients.
A separate element in the work plan new for 2013 is a focus on General Inpatient Care utilization. The OIG comments that the GIP utilization trend may be indicative of patients placed in this level but not requiring the increased care. They specifically note their suspicion of GIP utilization tied to the action of the hospice to garner additional revenue. We find this a bit curious as the industry does have GIP caps in-place, tied to the overall days of care for a hospice provider. We also haven’t seen much trend change here rather, seeing a greater increase in up-coding with Continuous Care. Certain providers seem willing to push the Continuous Care level more aggressively than others which we find somewhat “odd”. The oddity lies in the fact that Continuous Care is difficult to staff, tough to justify and rarely ever warranted (or proper) if the patient is residing in an institutional setting such as a SNF. Our take is that while the OIG may have some cause to look at GIP utilization the questionable trend for certain providers lies in Continuous Care (doubtful that it is truly warranted and more doubtful that the requirement of care is actually provided or met).
Other/Miscellaneous: We are seeing a growing albeit somewhat modest trend of hospices unwilling to either accept patients requiring certain more clinically complex treatments or declining coverage for these treatments. Specifically, palliative radiation or chemotherapy, tube feedings, dialysis, and certain medications such as antibiotics and cardiac medications. We tend to see the movement in proprietary hospices vs. non-profit hospices although we have seen non-profits become more adverse or cautious in dealing with these issues either via admission or coverage. Managed correctly, all of the aforementioned clinical interventions make sense within hospice and can be a marketing advantage for providers who are keen at balancing the risk/benefit equations. Hospices looking for a competitive advantage in a tight market/industry, would be wise to explore greater or expanded avenues of clinical complexity/intervention in terms of palliation rather than constraining viable and reasonable options.