On May 5, the U.S. Department of Justice released its most recent complaint (legal suit filed in Federal court) against Chemed, the corporate parent of Vitas. The complaint is a False Claims Act suit. Briefly for the uninitiated, a False Claims Act suit alleges that the Medicare provider knowingly (or unknowingly but once discovered, did not disclose) engaged in certain activity to cause payment to the provider for Medicare services that (not exhaustively listed);
- Were not provided
- Were provided but not necessary
- Were provided improperly, through illegal or unethical means such as via a kick-back scheme, etc.
- Were or are not substantiated by patient need
- Were provided by a person or organization not in compliance with relevant Medicare Conditions of Participation
- Were provided to patients that did not meet coverage criteria
The dominant False Claims Act suits relate to care not provided, care billed for at a particular level despite a related patient need (over-billing), or care provided by but not substantiated by assessment, documentation, or certification. In the case against Chemed/Vitas, the Federal government is alleging that Vitas intentionally over-billed Medicare for higher reimbursement amounts by “up-coding” patient needs absent any real need and, admitted patients for care and billed for services where there was no definitional or certifiable need on the part of the patient. In this case, each violation is alleged against Vitas as a hospice provider organization.
Through various cited examples to substantiate its case, the Federal government alleges three primary activities and/or schemes ( the support for the listed causes of action) that led to a series of False Claim Act violations, spanning from 2002 to current.
- Coding a patient as requiring Continuous or Crisis Care where no such need existed. Continuous Care or Crisis Care is the highest reimbursed care level within the Medicare Hospice Benefit; today, averaging just short of $1,000 per day. Because of the definition standards and requirements for a hospice to provide and therein bill for Continuous Care, the utilization across the industry averages less than 2% of all days of care. (Vitas averaged nearly 20% of its days in this category.) The requirement for a hospice is a patient’s current symptomatic needs are so complex and unstable that the hospice provide at minimum, 8 hours of licensed nursing care to the patient within a 24 hour period. Typically, this care is rendered by RNs and somewhat less often, LPNs or LVNs. Its rarity stems from two components. First, the true need of a patient in crisis with an end-stage disease for 8 or more hours of licensed nursing care. Second, the reality of hospice staff levels and the availability of dedicated, licensed nursing coverage for a single patient. Medicare Conditions of Participation do not allow nursing services via agency contract. All nursing, except for very episodic and highly unusual instances, must be provided by the hospice employees exclusively.
- Enrolling patients and thus accepting the Medicare hospice per diem (presently averaging around $160 per day) that did not meet the hospice certification criteria of ‘likely terminal, sans curative interventions, within 6 months or less’. Citing numerous examples, the complaint details a pervasive practice of increasing revenues and thus, patient volume via enrolling patients and fraudulently certifying the same as terminal, when the patient was not under any common review, proximal to death.
- Employing aggressive marketing campaigns and incentivizing employees and agents, to knowingly misrepresent patient conditions and/or falsely enroll and then subsequently, code as appropriate for hospice including, at higher reimbursement levels such as Continuous or Crisis Care levels.
Reading the complaint, I was struck with a number of thoughts. First, the magnitude of the complaint is huge. It encapsulates the entirety of Chemed’s hospice holdings, collectively Vitas. The majority of False Claims Act complaints are against a single provider or geographically and agency limited. Additionally, the time period referenced encompasses over a decade of claims. As I have followed False Claims Act cases in health care for years and paid close attention to the hospice activity, a reasonable estimate of the dollar amount (Vitas)involved is hundreds of millions of actual claims that are exposed to treble damages before the imposition of Civil Monetary Penalties. There is also the shadow of criminal prosecution for certain Vitas actors and management looming. Finally, this complaint is in the midst of other complaints against Vitas, open or soon to be open. A significant False Claims Act case is open against them in Texas and a newly opened complaint with a physician whistleblower in Los Angeles just broke and is today, wrapped in the broader complaint. Shareholder suits, although relatively meaningless are popping (meaningless in damages, still damaging in costs to defend). As is always the circumstance in matters such as this, the complaint will have tentacles and I suspect there are many.
In an earlier post, I wrote how the parallel is striking between Vitas’ current problems and the investigations that crippled and continue to cripple Amedysis. Amedysis was the “big dog” in the home health industry until it became the target of Department of Justice investigations and Senate inquiries. Once trading at nearly $60 per share, Amedysis trades today around $10. Their earnings estimates continue to shallow and at 10x projected earnings, their share price today should be around $5. Once a billion dollar plus company, Amedysis today has shrunk by more than half. They continue to close agencies and scramble to maintain market share. Major network contracts have cut their exposure to Amedysis and thus, payments. Their aggressive Medicare business is a fraction of what it once was and they remain today, under investigation. The last likely play is to go private via a private-equity sale and simultaneously restructure, outside of the publicly traded arena.
Reading various investment analyst reports and Vitas’ disclosures, the “take away” on the part of Wall Street is more wait and see with some folks marking this up to “cost of doing business” and others trying to grasp the magnitude. As I consult for a number of firms that invest in the health care industry, I understand the difficulties in wrapping one’s head around the complaints and the possible fall-out for Chemed/Vitas. Because of my working knowledge of the health care industry, depth of experience with the regulatory process, etc., my view is more solid (not necessarily right perhaps) today than that of most investment firms. My view comes from thirty years of research, operational, and consulting work in the industry.
From my vantage point, Vitas is about to begin a slow and profound slide into an abyss that they will not recover from. The complaints current and yet forthcoming, paint an overall picture of a business model that is grossly non-compliant and steeped in fraud at the core. Retooling this model, just as occurred with Amedysis, will shrink revenue, market share, and company value expressed via price per share. Unlike Amedysis, Vitas exists in the “hospice space” only. They have no other revenue source or model. Amedysis had and continues to have, some ability to ply the entirety of the home health industry and to a much lesser scale, the hospice industry. Their revenue model is sufficiently broader, though flawed in its reliance on exploiting Medicare and the therapy components thereto. Vitas exists in an industry where Medicare is the primary payer and the overall market for hospice by definition, is very narrow. A significant “clip” to their volume and revenue streams resulting from having to adjust in response to current and future investigations will begin the shrinking process and as more is disclosed, the process accelerates.
True enough that the ultimate settlement may not be fully crippling even though the scope could be hundreds of millions of dollars. The real damages lie in the go-forward world of continued compliance monitoring and being subject to a lengthy period of oversight by the Feds. Again, I offer Amedysis as a reference. The complaints won’t resolve timely and thus, the slow dance of revision begins. Moreover, everything now public suggests a clear tone from the Department of Justice and CMS of a focused intent to shrink the prevalence of large, for-profit hospices and curtail dramatically, the incentive to suspiciously enroll non-terminal patients. Their words in various locations, tell me straight-forward that the industry has a fraud pandemic and the day of reckoning has arrived. Vitas, just as Amedysis on the home health side, is the poster-child face of the “bad actors” per the Feds. Vitas is the example and the governmental intent is clear: get them compliant at any cost including the death of the company. The Washington view is that ample providers exist to care for the organic demand (my view as well) and the loss of Vitas will have no negative impact on access (again, my view as well).
What next? The implosion of Vitas begins and the hospice industry will bear some of the fall-out. The Feds are ramping-up investigations and reviews across the industry and for the providers who think vulnerability doesn’t exist, I offer words of extreme caution. Mandated by the ACA, the Secretary of HHS must promulgate new payment methodology for the industry after October 1, 2013 and before September 30, 2014. The cases against Vitas and others that have committed similar violations will form the backdrop for payment restructuring and associated rule-making. As has happened across the health care industry, payment reform and restructured rules associated with the same, emanate from sector dynamics current. My guess is that the next round of payment reform for the hospice industry will organically change provider business models and not toward greater profitability.
Note: Readers with subject level interest in hospice and/or separately, the topic of fraud and compliance in healthcare will find a number of prior posts on these topics, on this site.