Seems every day this month has been hot and dry – could use a break from the heat and definitely, some prolonged rain. Within the past couple of weeks, I’ve traveled “rural” a bit and as a result, I have a different perspective on what farmers and ranchers in the middle-section of the country are struggling with. Brutal is the best word I can think of.
As this week concludes, Medicaid remains on my radar for a variety of reasons, some attributable to where I have been, discussions with providers in middle-America states, etc., and some attributable to policy news I’m tracking. With that note, here’s my trend list and of course, a couple of brief fall-out issues for the week and early next week.
Medicaid: If you are a policy junkie and economist like me, this issue is truly fascinating, full of complexity, politics, nuances and implications for providers and governments alike. On Monday, the CBO is supposed to release an updated scoring of the PPACA post the Supreme Court decision. What I will look closest at is their analysis of the forecasted costs of Medicaid expansion. The CBO is in a bit of a “between a rock and a hard place” scenario as it must score the law as it “is”, weaving the Court’s decision into the equation. What is unknown is how states will proceed with expansion. I suspect the CBO scoring to be a tad favorable for expansion prospects as the mechanisms with the PPACA for state to state funding support during implementation cover substantially, all of the costs. As the CBO is constricted by its charter and charge in matters such as this, what won’t be touched on is the existing funding problems that states have within their Medicaid programs and the depth of go forward deficits that are not covered by additional federal funding spun from the PPACA. Read on.
Earlier this week, and tied directly to this global issue of Medicaid expansion, CBO estimates, etc., a report was released from the State Budget Crisis Task Force, co-chaired by former Federal Reserve Chair Paul Volcker and businessman and former New York Lt. Governor, Richard Ravitch. Other notables on this task force are economist Alice Rivlin and former Secretary of State George Schultz. (A PDF copy of the report is available to my readers by dropping me an e-mail at hislop3@msn.com ). Within this deep report is a section on Medicaid, current issues and likely impact due to expansion under the PPACA. The Task Force’s analysis points directly to comments I have made in other articles on Medicaid: The program is so structurally flawed in terms of funding and government regulatory constraints that expansion will only “pile on” to existing problems and deficits.
Summarized, Medicaid spending is growing faster than current state revenues. Today, Medicaid for most states is their largest outlay, surpassing education spending. The prolonged recessionary period has shrunk and constrained state revenues while simultaneously increasing Medicaid eligibility and enrollment; a burgeoning gap between revenue inflow and outlay. Under the ARRA (Stimulus), states received enhanced federal support but with a policy catch; the enhanced funding could only go to expand programs under Medicaid. At the end of 2011, the enhanced funding disappeared while state fortunes in terms of revenue and expanded enrollment remained virtually the same, creating enormous structural deficits, larger than pre-recession years. The enhanced funding provided under the ARRA served as a band-aid only, allowing states to have sufficient current funds to avoid raising taxes or restructuring their Medicaid programs. Restructuring however, is not an easy option as states are presently finding as doing so requires federal approval, often slow to come and limiting in creativity or significance. Similarly, any revisions to Medicaid that occurred within a state’s plan before or after passage of the PPACA are tied to a Maintenance of Effort provision under the law. In short, this constriction forbids states from reducing benefits or program eligibility and thereby, spending.
The report’s conclusion is that regardless of the PPACA impact, Medicaid will remain a significant crisis issues for virtually all states. The simplest reason is that the PPACA additional funding serves one purpose; expanded eligibility. All other existing structural problems for the states such as bureaucratic plan and program requirements, lack of flexibility, increasing long-term care utilization (not addressed by the PPACA), slow economic recovery (no new revenues), and existing debt levels within state budgets aren’t changed at all by the PPACA and Medicaid expansion. Similarly, states have a current and real (justifiable) fear that the Federal government will not be able to sustain the projected funding levels provided with expansion. Federal deficit reduction actions will require cuts to entitlements and grants to states for federal program support. Among the largest current state grant expenditures is Medicaid. With looming deficit reductions at the federal level necessary, no real revenue change forecasted for states via increased tax revenues, Medicaid eligibility growth not subsiding, provider balk at payment reductions (reducing outlays), there is real justification that Medicaid is set for some level of substantive reform, arising out of a near financial melt-down.
Drugs, Drugs and More Drugs: A topic that won’t go away is anti-psychotic/psychoactive drug use in nursing homes. Whether the news comes from the OIG at DHHS or via CMS, this issue has clearly got attention in Washington. While I have yet to see surveyors take this issue to task at individual facilities (at least not at an in-depth level), the buzz I hear suggests that regulatory engagement will ramp-up and facilities need to be prepared. The latest news is from CMS regarding incorporating anti-psychotic use numbers under Medicare Compare. The message, and I have said this before (repeatedly), providers beware and get on this issue!
Changes to CCRC Entrance Fee Financial Reporting: For CCRCs that charge entrance fees (most do), a change is occurring regarding the reporting of entrance fees subject to refundability provisions. The Financial Accounting Standards Board (FASB) has revised a former requirement that the refundable portion of an entrance fee tied to reoccupancy (the refund trigger) be amortized to income over the useful life of the physical plant housing the unit will change requiring the CCRC to book the full liability of the refund due if the refund provision within the contract does not specifically state that the proceeds from unit re-occupancy are the trigger for the refund. In other words, any other limiting provisions that provide for a refund separate from strict reoccupancy, regardless fo the time period lapse, will necessitate the treatment of the entrance fee as a liability versus quasi-equity. Application of this new treatment will require CCRCs affected to reverse their prior cumulative amortization and establish the refund liability provision on their balance sheet. There may be some spill-over impact for affected CCRCs in terms of their FSO (Future Service Obligation) calculation as the deferred revenue component within the calculation goes away. I don’t personally believe this issue to be material for the industry (the FSO issue) but I do anticipated that certain CCRCs will have to take additional time explaining the changes to their Boards and bankers as implementation will cause some point-in-time “funk” to their statements.
Here are this week’s Fall Out issues (stuff worth noting briefly but not important enough to continue to watch – for now).
- Department of Agriculture reports are warning that persistent heat and drought are certain to lead to significant summer crop yield reductions. As a result, current corn commodity prices are up 31% since June. Beef, pork and poultry prices will rise accordingly as will corn-based Ethanol and thus, mixed blend gasoline to a certain extent (although oil prices continue to remain fairly flat and oil is the biggest driver of gas prices). For providers, food costs will rise and in this environment, especially for SNFs and Hospitals, it’s just another nuisance when there is no foreseeable increase in revenue.
- Soft census seems a national trend right now from hospitals to SNFs, home health and hospice. My group is watching this issue closely and as of today, we can’t correlate this into a shift of some discernible reason or sets of reasons. I know the nation isn’t healthier and perhaps the only driver in-play is continued economic malaise that is causing folks to avoid elective procedures, forestall health spending as much as possible, etc. Still, we are seeing this even for Medicare utilization. Perhaps more on this next week.
- No real news on healthcare stocks post the Court decision on the PPACA. We are watching this group closely to see if anything perks but so far, not much – a mixed bag. There are some clear winners if the PPACA remains full intact post-November – insurers and MCOs are an obvious winner. Providers are less clear but in time, certain hospital groups and well positioned post-acute providers could do well, especially if they are aligned with ACOs, etc.
- The weather deserves a note here just because; its lousy, nasty, hot, dry, etc. Don’t know anything more to say other than nationally, providers and my healthcare contacts and colleagues universal are experiencing extreme weather hang-over. For some, the excessive heat and drought is causing building problems and higher than anticipated utility costs and for others, just a general crankiness among staff, physicians, etc. Pray for rain and a shift in the jet stream!
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