Follow-Up: Real Impacts of Poor Quality and Lax Compliance
About ten days ago, I wrote a piece regarding the negative impacts providers can expect (and receive) when quality of care and service combined with vigilance on compliance are not primary in and across their organizations. All too often, I hear companies and organizations that I work with, say they are committed to quality but by deeds, the evidence is lacking. In fact, I have never heard a failed organization say that they weren’t (always) committed to quality patient care, etc. I have also never heard a failing organization or poorly rated one say that “while we will talk about quality, that’s all we do – talk”. No organization ever says that quality is “lip service more than substance” just like no restaurant ever says their food is “marginal or poor”. Yet with health care, the peril of poor performance is all over the news and the news is quite sobering.
Below are two news stories that colleagues and readers have sent. I think each in its own right, helps frame this issue in “real terms”.
Here is the first regarding the care fall-out associated with the story/saga of HCP and HCR ManorCare. I have written on this subject extensively, with many articles available on this site.
The second story concerns SNF Value-Based Purchasing and how the industry performed in the first phase. Again, I have written articles on VBP which can be found on this site and just conducted a webinar for HCPro on this subject. The article is fascinating in two regards. First, the limited number of facilities/providers that performed above the benchmark – only 27%. Fully 73% of the SNFs performed poor enough in terms of avoidable rehospitalization rates that they are receiving reduced Medicare reimbursement rates as a penalty. For an industry hardly flush with cash, it is incongruous how any organization can perform below standard and take payment cuts. Quality, as I have written and lectured on consistently, rewards and punishes depending on how it is provided (good vs. bad). The article is below.
I hope readers enjoy both articles as they illustrate far better, the implications of poor quality, than I can via my words.
The Real Impacts of Poor Quality, Inadequate Compliance and Weak Risk Management
A number of interesting information drops occurred this past week or so reminding me that from time to time, the obvious isn’t always so obvious. The seniors housing and skilled care industry today is going through a rocky patch. A solid half of the SNF industry is severely hurting or struggling mightily due to Med Advantage, softer demand, pervasive reliance on Medicaid for census, labor shortages, rising wage pressure, tight Medicare reimbursement, new regulations, etc. (I could elaborate for a stand-alone article). While not as pervasive in its struggles as the SNF industry, Assisted Living is facing challenges due to softer census, too much capacity, rising resident acuity, labor costs and shortages and gradually increasing regulatory scrutiny. The relative strength in the overall seniors housing and post-acute sector is home health and independent housing. Notice, I did say relative as home health demand is good but regulatory over-burden is still present along with tight reimbursement. Home health is also experiencing labor challenges, the same as SNFs and ALFs. The relative strength that is found in independent housing tends to be more on the market and sub-market rent side. Many, many high-end providers are still struggling with census challenges and soft demand in certain markets.
As I have written and counseled many times to investors and clients alike, there is something to learn from the national trends but health care and seniors housing is still, a local reality. What this means is that in spite of some rocky water for the industry, there are providers that do well and are bullish about their fortune in their respective industry segments. Not to seem too convoluted, the national trends matter but as I like to think, in the context of what they truly mean. In this regard, what they truly mean is how the trends impact providers on a macro basis as well as on a micro, behavioral basis.
As I started, this past week or so included some interesting information drops. The first and not too surprising, is another alarm from a major, publicly traded provider organization that it was on the narrow ledge to failure. Five Star Senior Living provided notice that given its financial condition now and as forecasted, it would not be able to meet its continuing obligations in the form of debt or timely payment of operating expenses. When I say half the SNF industry is in battle to survive, I’m not kidding.
In unrelated drops, CNA (the major national commercial insurance provider) released its 2018 Claims Report for Long-Term Care/Senior Living. The claims in this case are liability related. Following CNA’s release, Willis Towers Perrin (major insurance brokerage and consultancy firm) provided their outlook for liability insurance noting that Long-Term Care and Seniors Housing should expect liability premium increases of 5% to 30%. Anecdotally and unrelated, we are seeing steep property/casualty increases in the industry as well due to extreme weather losses over the last twelve to eighteen months.
While not absolute but substantial in nature, there is a direct correlation between providers that are struggling and the quality of care and service they provide to their patients. The core competencies required to provide superb care are tied directly to compliance and risk management. I have never seen an organization that delivers excellent care have poor compliance trends (billing, survey, other) and weak risk management leading to high levels of worker’s comp cases, lawsuits, liability insurance claims, etc. Lately, there is the same correlation developing between quality and financial results. As more quality payer source referrals and higher reimbursement with incentive payments connect to patient care outcomes, a gap is evident between the providers that are thriving and those that are dying. That gap is the quality divide.
There is a spiral effect that is visible today in the SNF industry. This effect has been visible for some time in hospitals. It occurs as follows.
- Care delivery is inconsistent and in most cases, not great. Service is the same.
- Complaints and survey results demonstrate the same and are reflected in star ratings.
- Consumers and referral sources catch wind that care is not good.
- Staff turnover accelerates, including key personnel that take with them, a disparaging message regarding care.
- Quality mix erodes slightly. Medicaid census increases as the “next best” alternative to an empty bed.
- Financial results start eroding and losses occur or come into view. Cash margins are getting tighter.
- Expenses become an issue and cuts are necessary. The cuts are incongruous to improving care.
- With limited resources, quality suffers even more. No money is available for capital and equipment upgrades. Staff morale suffers and staffing levels are lower. Productivity wanes as morale is poor and patient care follows.
- Survey results are very poor and fines now happen. The fines are expensive, removing more resources away from patient care.
- Costs are growing rapidly related to higher insurance premiums, poor worker’s comp experience, unemployment costs, turnover, and legal costs to defend the facility. These costs are removing resources away from patient care.
- Finally, because the resources are too depleted to make the necessary changes to rebuild quality, staff levels, etc. and no lender is available to front any more capital, the enterprise collapses. The names are becoming familiar….Signature, ManorCare, Five Star, Genesis, Kindred are all SNF providers whose future is extinction or “almost”.
Arguably it takes money to have and deliver quality. Equally as arguable today is that without quality, money won’t be made sufficient enough to stave-off failure due to…poor quality. When quality isn’t the primary objective, compliance and risk management work as dead weights that the organization must carry; and the weight increases over time. Why this isn’t obvious yet in the post-acute and seniors housing industry is beyond me. An analogy that I have used time and time again is the restaurant analogy. Successful restaurants are laser-focused on their products – food and service. They know that poor marks in either category or an outbreak of food borne illness can be death to their livelihood. In a crowded market of diners, price or value ties to quality and experience across a myriad of options. What is common among the restaurants that succeed is their quality meets and exceeds, the customer’s realization of value (getting equal to or more satisfaction for the price paid). When this occurs, money flows in increments sufficient to reward investors, pay employees, invest in equipment, and to reinvest in the products and services that customers buy. Simple.
Seniors housing and post-acute care aren’t too different or disparate from the restaurant analogy. The market is crowded with options…too many actually. Yes, the customer relationships are a bit different but the mechanics and economic levers and realities identical. Providers that give great care, equal to or higher than the price points/reimbursement levels are GAINING customers via referrals. The customers they are gaining are coming with good payment sources. Money in the form of cash flow is strong enough to invest in plant, property, equipment and staff. Doing so reinforces quality and service and allows the referral cycle to optimize. As the market continues to shrink in terms of number of providers due to failure, the few that are exceptional continue to see their future and fortune improve. Again, simple.
What we know is the following and the message should be clear today for those who still can control how they approach and manage their quality and customer experience.
- Poor quality costs money disproportionately more than the dollars required to deliver “high quality”. The costs are erosive and ongoing.
- Higher insurance premiums
- Poor compliance results with fines (the federal fines today are steep and immediate for SNFs)
- Higher capital costs (yes lenders are now looking at quality measures as a measure of credit risk)
- Increased litigation risks which when realized, contribute to higher insurance premiums.
- All of the reimbursement incentives today and going forward are only available to providers that can deliver high quality, efficient patient outcomes. Value-based purchasing rewards good care (limited rehospitalizations) and punishes poor care. The impact is just being seen today and in the years forward, the impact is greater – both ways (reward and punishment). The same is true under the new and forthcoming, case-mix payment models. The high quality, adept providers will be able to provide the care rewarded highest, under these new payment models (PDPM, PDGM). Those that don’t have the clinical infrastructure will languish.
- Referrals today are more and more, skewed toward quality providers. With hospitals and narrow networks looking for select post-acute providers that won’t increase their risks in value-based purchasing or bundles/ACOs, poor providers in terms of quality are increasingly seeing diminished referrals.
- The Plaintiff’s Bar is watching the SNF and seniors housing industry carefully and with optimism. The CNA report I referenced includes these snippets.
- 22.6% of closed claims relate to pressure injuries (an almost entirely avoidable negative outcome).
- Death from or related to pressure injuries is the highest average claim by cost.
- 14 out of the 15 highest cost claims occurred in for-profit facilities.
- Assisted Living claims cost more on average than SNF claims.
- Falls continue to represent the lion share of liability claims – 40+%. The vast majority tie to SNF care.
- The frequency of claims is increasing.
- Independent Living is not immune. The report contains claim data on fall and pressure injury cases from Independent Living.
While no organization is immune from a law suit, the reality remains that organizations with exemplary quality history, high satisfaction levels, and processes that focus uniquely on the elements of great care and service (staffing levels, staff competency, good management, proper equipment, IT infrastructure, etc.) provide less of a target, if any. No matter where, negative outcomes still occur but in “quality” organizations, they are an exception. Because care is primary and service right behind, there is far less of a motivation for patients and families to litigate as by reason, the organization wasn’t negligent. Again, the connections are rather ‘simple’.
Home Health Final Rule: Rate Increases plus PDGM
While I was in Philadelphia speaking at LeadingAge’s annual conference, CMS released its 2019 Home Health Final Rule. As I wrote in an earlier post regarding the proposed rule, the topic of interest was/is a new payment model – PDGM. As has been the case across the post-acute industry, CMS is advancing case-mix models crafted around a simplified patient assessment, less therapy oriented more nursing/medically balanced. The industry lobbied for modification or delay in PDGM, primarily due to some underlying behavioral assumptions CMS embedded in the proposal (more on this in later paragraphs).
The most relevant, immediate impact of the final rule is rate increases (finally) for the industry – 2.2% or $420 million. The industry has experienced rate cuts and rebasing consistently since 2010 as a response to fast growth and high profit margins exhibited by companies like Amedysis (the center of a Congressional hearing in 2011).
PDGM is slated to take effect “on or after January 1, 2020”. The ambiguity in this language is worth noting as there are some that believe modification, even delay is possible. Compared to the proposed rule, the final rule includes 216 more Home Health Resource Groups due to bifurcating Medication Management Teaching and Assessment from previous group alignments. The following key changes are a result of PDGM.
- As with PDPM on the SNF side, PDGM removes the therapy weight/influence separately from the assessment and payment element weights for HHAs. The clinical indications or nursing considerations are given more weight along with patient comorbidities.
- Coding becomes a key factor in payment mechanics, particularly diagnoses and co-morbidity.
- Functional status is given a higher weight, as is the case today with all post-acute payment model reforms.
- Episode lengths are halved – down from 60 days (current) to 30 days.
- PDGM is budget neutral meaning that when fully implemented,, the cost to the Federal government for Medicare HHA payments in the aggregate is no greater than current (inflation adjusted for time). To get to budget neutrality, certain behavioral assumptions about provide reactions to the changes are used. As one would suspect, this is a subject of concern and debate by the HHA industry.
The behavioral assumption issue referenced in #5 above is an imputed reality in all payment model changes. In fact, it is an economic model necessity when attempting to address “how” certain changes in reward (payment) will move activity or behavior toward those places where reward or payment is maximized. It is a key economic behavioral axiom: What get’s rewarded, get’s done.
In effect, CMS is saying that budget neutrality is achieved for a 30 day episode when payments for the episode equal $1,753.68. Getting to this number, CMS assumed that agencies would react or respond quickly to payment changes (areas where increases are found) in co-morbidity coding, clinical group assignment and reduction in LUPA cases. However, if CMS models slower reactions or limited reactions by the industry (operating norms as current persist), the payment impact is an increase of 6.42% or $1,873.91. Because budget neutrality is mandated concurrent with PDGM, the concerns providers are raising relates to how payments will ultimately be determined and when if necessary, will adjustments be made IF the anticipated behavioral changes don’t manifest as factored. Simply stated, this collective concern(s) is the reason the industry continues to lobby for delay, more analysis and further definitional clarity with the PDGM funding and payment assumptions prior to implementation.
One final note with respect to PDGM dynamics. Readers of my articles and attendees at lectures, webinars, other presentations have heard me discuss overall post-acute payment simplification and the movement within Medicare reimbursement to site neutrality. PDGM is an interesting payment model from the standpoint that it parallels in many ways, the PDPM movement for SNFs. It is diagnosis based, more clinically/nursing driven than the previous system and more holistic in capturing additional patient characteristics (co-morbidities) than before in order to address payment relevance. With assessment simplification and a growing focus on patient functional status at various points across a post-acute global episode (from hospital discharge to care completion), an overall framework is becoming more visible. Expect continued work from CMS on payment simplification, more calls from MedPac for site neutral payments for post-acute care. The policy discussions are those that reinforce payment that follows the patient, based on patient clinical needs, unattached to any site dynamics or locations, save perhaps a coding modifier when inpatient care is warranted to account for the capital and equipment elements in the cost of care. When looking globally at the overall health care payment and policy trend that is occurring sector by sector, the future of payment simplification and movement to site neutrality is certain. One question remains: By when?
Site Neutral Payment Update
In early October, I wrote an article regarding CMS 2019 OPPS (outpatient PPS) proposed rule, specifically regarding site neutral payments. The purpose of the article was to address the site neutrality trend that CMS is on, streamlining payments to reduced location of care disparities for the same care services. Succinctly, if the care provided is technically the same but the costs by location are different due to operating and capital requirements, should payments vary?
Yesterday, CMS pushed forward the OPPS final rule, maintaining the concept of site neutrality despite heavy hospital lobbying. The gist of the rule is as follows.
- Hospital off-campus outpatient facilities will now be paid the same as physician-owned or independently owned/operated outpatient facilities for clinic visits. No longer will there be a hospital place-of-care premium attached to the payment.
- Off campus is defined as 250 yards or more “away” from the hospital campus or a remote location.
- For CY 2019, the phase-in/transition is a payment reduction equal to 50% of the net difference between the physician fee schedule payment for a clinic visit and the same payment for a hospital locus clinic or outpatient setting. The amount is equal to 70% of the OPPS (hospital outpatient PPS rate).
- For CY 2020, the amount paid will be the physician fee schedule amount or 40% of OPPS rate, regardless of location.
- Final Rule text is here: 2019 OPPS Final Rule
What CMS noted originally as the need stemmed from a Medpac report where a Level 2 echocardiogram cost 141% more in a hospital outpatient setting than in a physician office/clinic setting. This final rule is part of an expected and continuing trend to simplify and streamline payments among provider locations. Similarly, CMS is following a path or theme laid forth by Medpac concerning payments tied to care services and patient needs rather than settings or places of care. The 2019 OPPS payment change is a $760 million savings in 2019 expenditures.
Finalization of the OPPS rule with site neutral payments cannot be overlooked in significance. As I wrote in the October article, this is a harbinger of where CMS and Medicare policy makers are heading. Hospitals lobbied hard and heavy against this implementation claiming a distinction in payment was not only required by dictated by patient care discrepancies. Alas, there appeared to be no common ground found within that argument.
I suspect now that the door is opened just a touch wider for site neutral post-acute payment proposals to advance. Under certain case-mix categories, there truly is very little difference in care delivered and no difference in outcomes (adversely so) between SNFs, IRFs, and LTAcHs yet there is wide payment difference. With lengths of stay declining and occupancy rates the same (declining) among these provider groups, CMS will no doubt (my opinion) push forward a streamlined proposal on site neutral payments in the next three years. I anticipate the first proposal to concentrate almost exclusively, on SNFs, IRFs and perhaps, some home health case mix categories. If hospitals can’t budge CMS away from the site neutral path, there is zero likelihood that IRFs and LTAcHs can divert CMS from site neutral proposals in the near future.
Don’t Miss Event: Webinar on Reducing Rehospitalizations
A week from today, I am conducting a webinar on reducing/avoiding unnecessary rehospitalizations. With SNFs just experiencing the VBP impact (Medicare incentive or reduction) starting October 1, this event is extremely timely. I’ll cover the health policy and reimbursement implications regarding rehospitalizations plus new QRP and QM updates. I’ll also touch on PDPM implications. Some great tools are available for attendees as well.
Register here at a super price – $59 for the session and the tools!
http://hcmarketplace.com/reducing-readmissions
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