Home Health and Assisted Living: Compliance and Litigation Tips to Note
A growth, if you will, opportunity for many Assisted Living facilities is caring for a more clinically complex resident or resident group. The clinical complexity is very much tied to additional medical and physical frailty, necessitating access at times to skilled nursing and therapies. Most Assisted Living facilities, especially those not affiliated with a national or regional organization with infrastructure services such as therapies, seek services from Home Health Agencies when required. In this manner, the Assisted Living core staff are for resident ADL needs and care primarily, and the intermittent skilled needs of certain nursing interventions and therapies (OT, PT, etc.) are provided by the Home Health Agency.
What occurs when an Assisted Living and a Home Health Agency work collaboratively to serve certain residents with skilled needs, is a bifurcated relationship where roles and responsibilities for resident care and service can get murky. Briefly, here are the two organizational duties for resident care.
Assisted Living Facility:
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- Room and Board accommodations including (typically) common areas, dining/meals, some level of furnishings, utilities, access/egress, outside areas, etc.
- Staff supervision of residents in general and the facility including maintenance and cleaning of the environment
- Resident assistance or direct provision of ADL cares such as dressing, toileting, bathing, mobility/transferring, eating but not generally, feeding assistance.
- Social activities for residents and certain social services.
- Medication management and administration. Facility may/may not accommodate medication ordering via a pharmacy relationship.
- Other services such as religion/pastoral care, beauty/barber, transportation, dietetics, physician, banking, etc. may/may not be available.
Home Health Agency:
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- Physical, Occupational, and/or Speech Therapy as assessed by need and as ordered by a physician.
- Skilled nursing services if required, as assessed by need and as order by a physician. These services typically include education, various wound treatments, complex catheter care, IV services, ostomy care, pain management, etc.
- Services are provided as needed by the resident.
- The Agency must provide training/education to the Assisted Living Facility staff regarding the skilled services/care it is providing.
- The Agency is responsible for care coordination between the two organizations such that, its orders and services are reflected as required by law, in the resident Service/Care Plan.
- The Home Health Agency is also responsible for billing insurance or Medicare and for keeping its own medical record.
- The Agency is responsible for patient supplies as the same pertain to their provision of skilled services.
- The Agency is responsible for maintaining compliance with Medicare Conditions of Participation and it cannot delegate any related tasks or duties to the Assisted Living unless permitted by regulation. Examples include obtaining orders for care, updating physicians as needed, documenting service provision, reconciliation of medications, etc.
Think of the relationship this way. The Assisted Living serves as the resident/patient’s home. This is no different than if the resident/patient lived in the community, in their own residence. One could easily create the relationship via a mental picture of the Assisted Living staff as familial caregivers.
The Home Health Agency’s relationship is then, no different than if the patient resided in their own home. The Agency must assess, develop a plan of care, coordinate visit schedules, document the care, share info. with the patient and the family (Assisted Living staff), and when appropriate, discharge plan and coordinate care for any additional services.
The compliance and litigation perils occur when the relationships between the two become blurry or, when either entity fails to properly meet its separate obligations. Here are the common risks that I routinely see/encounter.
- The Home Health Agency fails to incorporate the Assisted Living in its plan of care and to educate the Assisted Living of the same, especially if follow-through is required on ADL education or support.
- The Assisted Living fails to update its Service Plan for Home Health services, as required. The biggest error I see here is typically with regard to therapy services and the introduction of any new devices (e.g., walkers, canes, support bars, adaptive equipment).
- The Home Health Agency delegates physician and family contact to the Assisted Living for Home Health related service needs.
- The Assisted Living fails to notify the Home Health agency of changes in resident care, conditions, etc. such as noticing a change in skin condition, a change in a medication order unrelated to the Agency’s skilled services.
- The Home Health Agency fails to coordinate care via discharge planning, even though the resident will remain at the Facility.
- The Home Health Agency does not do med reconciliation on each visit, believing that the Facility should update the Agency with any new medications or order changes.
- The Agency is not responsive on a timely basis to resident condition changes including, hospitalizations. The Agency must be on-call and connected to resident condition changes, documenting and addressed service/care plan updates as required, especially post-hospitalization.
The risks associated with caring for a more complex resident/patient in an Assisted Living environment when Home Health services are initiated are many, as indicated above. I suggest Assisted Living Facilities try to coordinate their Home Health offerings, where possible, with a few or even, one agency. With good collaboration between providers, the risks can be minimized. In any regard, both providers need to understand their roles in resident care and make sure, staff are well-versed in their respective responsibilities. I advocate tools/cheat sheets if you will, especially for AL staff, delineating “who does what” and where, resources can be sourced if need be.
Merge/Affiliation in the Cards?
I pay close attention to economic trends and to the health care industry in general, as the same are applicable. One trend I’m watching quite closely is business consolidation and mergers/affiliations. In the general economy, a lot of consolidation is occurring post-pandemic. Restaurants are closing outlets (Red Lobster, Krispy Kreme, Burger King, etc.), retail outlets too like Bed Bath and Beyond and even, Wal Mart are closing stores in various locations. The drivers? Simplistically, supply chain issues (increased costs and inability to pass along the same via price) and labor costs plus worker shortage. There is another driver in some closures and that is environment as restaurants and retailers are leaving communities with high-crime and homelessness as they simply cannot generate a sustainable retail climate amidst theft (inventory loss), customer erosion (customers staying away from certain locations, etc.). Whole Foods leaving San Francisco is an example.
Health care and senior living/housing are not immune to these same pressures. Labor is a huge issue facing all providers today. Changing environment, particularly for urban providers is an issue. Supply chain issues and supply costs are additional motivators or drivers. And let’s not forget the impact of COVID (yet to totally abate in health care and senior living) and increasing regulatory costs. Below are some examples of consolidation and affiliation moves that I have seen recently.
- Diversified Healthcare Trust (REIT) merging with Office Properties Income Trust. This is really an access to capital play as Diversified is constrained from refinancing debt due to covenants. It has a pretty large capital need to improve its senior living facilities (primarily IL, AL and CCRC). Like most REITs with senior living holdings, the occupancy levels remain below targets/desired levels.
- Good Samaritan Lutheran/Sanford is offloading a large amount of skilled nursing facilities and other senior living centers across 15 states (primarily western states). Good Samaritan was the second largest chain provider of senior living.
- Sanford, which merged with Good Samaritan, is in the process of affiliating with Fairview Health. Fairview includes Ebenezer (senior living) which, is the largest non-profit manager of senior living projects in the country.
- Theda Care health system in Appleton, WI announces an affiliation plan with Froedtert/Medical College of Wisconsin health system. The two, primarily hospital and clinic-based organizations will offer services along with locations throughout the eastern corridor of WI, primarily Milwaukee metro area and the Fox Valley area (Appleton and Green Bay as the metro reference).
Looking at the press releases and then, reading other disclosure information and knowing players in each of these scenarios, a similar series of factors are driving the affiliation/merger/consolidation activity. Not surprising, these factors are not unique to health care/senior living. They are the same factors in many cases, driving decisions across all businesses/industries.
- Labor availability and cost. Affiliations and outlet reductions reduces labor cost and vulnerability to staff shortages.
- Stagnant volumes and revenue shortfalls. Senior living is not back to pre-pandemic occupancy levels and frankly, while the trend is improving, it could be a while before we see pre-pandemic occupancy levels.
- In the case of senior living, further movement toward home and community-based care options is eroding demand. This means, provider capacity is impacted. Closing outlets or selling them to more localized providers such as the case with Good Samaritan, make sense. Local providers have inherent market advantages that large, national or regional players simply don’t have.
- Supply chain improvements are possible with a larger platform though by experience, they are not as large and impactful as often forecasted. Single-source buying is good and can achieve discounts but often, the reliance on one source may challenge quality targets and innovation. I’ve seen this definitely occur with food and food service supplies.
- Overhead reduction is the biggest gain or biggest possible gain. Reducing management layers and consolidating overhead functions can cut millions of dollars of duplicative positions. In really good mergers/affiliations, bureaucracy is also reduced netting more efficiency and better care/service. This however, comes over time.
- Access to capital can improve as scale improves. In other words, larger organizations have more opportunities and outlets to raise capital when needed, especially if the scale achieved is margin positive.
- Increased market share and increased market opportunities can occur. For example, in the case of the Theda Care and Froedtert affiliation (if it closes), both systems get access to new markets via their affiliation and new customers without having to “build new” or “start new”. New building and starting new locations/outlets is expensive and time consuming. Leveraging the business footprint with a synergistic partnership is much faster and in theory, less expensive.
More mergers/affiliations to come? No doubt. While the economy is moving toward a recession and labor remains challenging, providers will have to look toward possible strategic opportunities that include adding services, becoming more efficient, building/improving capital access, and accommodating rising costs without concurrent increases in reimbursement or additional rate. Affiliations make sense for some providers, especially when selling is not a real or viable option (non-profits).
I’ll provide a merger/affiliation strategy document/post soon!
Litigation Risk and Assisted Living Facilities
As I mentioned in the prior two posts, litigation activity is on the increase, post-COVID, and some of the most fertile ground for plaintiff’s counsel is Assisted Living. SNFs are still as targeted but as stays decrease and facilities improve care capability, the trend remains level, for the most part. Where perhaps, Assisted Living and Independent Living were in the background, today that trend is changed.
Assisted Living’s litigation fertility is born from a number of conditions. Each of these play an interdependent role in “why” litigation is on the increase.
- Capacity in many markets is greater than supply of appropriate residents. The industry-wide view for years was “build it and they will come”. The reality is that Assisted Living is by origin, a fairly narrow market need. Its original purpose was to take a resident that was basically independent once, ADL assistance was provided. Either via cognitive declines or physical frailty, the care needs of the resident were such that active engagement of professional level nursing was not required and should the same be required, the resident moved to a nursing home. The demographic today, however, is quite a bit different.
- For year-end 2022 and the last calendar quarter, Assisted Living occupancy averaged 80.7%, just a tad better than SNF occupancy. Performance and cash flow return for facilities is above this level – generally 85% and above, depending on the size of the facility and whether the same is free-standing or part of a CCRC (source: NICmap). 4Q22-NIC-MAP-Market-Fundamentals-PDF
- When occupancy lags, the challenge is to maximize occupancy and the two options are to maintain existing residents as long as possible (even perhaps where the same is unwarranted) and/or to admit new residents. The challenge with admission is that all facilities in a given area likely are chasing the same residents and as is the case with Assisted Living, financial qualification may be difficult. Costs today for private units plus care can run proximal to SNFs.
- As facilities seek incremental census gains, the push to admit residents that may not be appropriate for the setting by need or to maintain residents not appropriate for the setting increases the risk of negative outcomes and thus, the risk of litigation. All too often, facilities may increase care acuity and need within the resident population without matching by staff level and service competency/capacity. This gap between the care needs of residents and the ability of the staff to meet such needs is a certain risk area for poor care and thus, litigation.
- As facilities seek to maintain residents in-place, the use of outside agency resources to do so further heightens litigation risk. For example, the introduction of hospice to maintain terminally ill residents may seem like a good idea yet, if the Assisted Living Facility is not fully aware of each provider’s responsibility for what care needs, residents can “fall through the cracks” in terms of service. The same is true with Home Health services for skilled rehab or nursing care.
Diane Hislop, RN, Sr. Partner at H2 Healthcare, LLC and head of the compliance practice, identifies some of the key perils she has seen in her practice. Ms. Hislop’s work also focuses on litigation (defense) on a forensic and expert witness level. “I see facilities admitting and maintaining, more challenging residents with growing diversity in care needs. If the facility is prepared for such residents by staff number and skill plus other service support (nutrition, therapy, social services, etc.), fine but, often the facility may not have such resources. The regulations don’t require the same levels of staff as an SNF yet, the resident may be borderline, SNF appropriate”.
Per Ms. Hislop, facilities need to borrow or utilize, many SNF tools and standards, even if not required by regulation, if they intend to take care of more complex residents. Even without requirements, best practices standards are what facilities should follow, by care needs of residents Hislop said. “The litigation I see is less about what is required and more about what residents needed and did the facility provide the requisite standard of care”.
Ms. Hislop stated that the tricky part of Assisted Living care centers around the goal of maximizing independence for the resident and choice. Often, families and physicians and extenders, don’t understand the industry standards and are quick to want unwarranted and improper interventions. “Restraints, chemical and physical, are the hardest to explain to families and practitioners, especially when residents are a fall risk. Things like side rails on beds, bed and chair alarms, forcing residents to sit in certain areas for observation are all in the ‘restraint’ realm. Families simply don’t grasp this and can run to the ‘facility did not do enough to stop my loved one from falling accusation’. Sadly, I see practitioners (doctors, NPs, etc.) who facilitate the misunderstanding. Maximum choice, even for residents with cognitive impairment along with maximum freedom, is the standard. The difficulty is that the same, allowing the resident as much choice and independence as possible, opens the door for increased bad outcome risk. The hallmark in U.S. healthcare is that the individual has the right to make his/her own decisions (under most circumstances) even if the same, are ill-advised or perhaps, poor choices”.
Another litigation area Ms. Hislop noted was when other providers such as hospice or home health are integrated into the Assisted Living facility. “I have cases where the litigation is about a bad outcome, an alleged wrongful death and there are two parties involved – for example, a hospice and the Assisted Living facility. Both have a part of the issue as each, had a distinct requirement of service and as is often the case, one assumed the other would take care of the issue. For example, a hospice not getting pain control in-place as the resident was dying and being symptomatic. The Assisted Living facility has basically a role as room and board and to provide meals, administer certain medications, and to update the hospice. It is the hospice’s duty however, to put the plan in-place to provide for the terminal care needs of the resident and that includes, medication related to the terminal diagnoses. Delays in care can be problematic”.
Below are Diane Hislop’s key recommendations as the same pertain to litigation risk in Assisted Living facilities. It was great getting her expert input for this post!
- Have clear admission standards and discharge standards for the facility and make families and residents aware of the same. Only take care of the residents the facility can safely manage by resources.
- Use best practice tools and standards for resident care even if the same are not required. Some are on this blog but others, can be easily found (e.g., fall programs, fall investigations, cognitive assessments, etc.).
- Utilize only a handful of outside resources or fewer if possible. If the facility is going to offer hospice to residents, pick and partner with a certain agency. This is possible. The same is true with home health. In this regard, the providers can develop a working relationship and a solid interface plan as to “who does what, is responsible for what”.
- Educate, educate, educate, staff and families on what is possible in an Assisted Living facility and what is not.
- Make sure staff have competencies, tested and trained no less than annually, in key care approaches and delivery, consistent with resident needs. Don’t short-cut this step with agency staff either and certainly, don’t hustle new staff into roles where they are unprepared for the care needs of residents.
Litigation and Staffing: What to Know, What to Control
Following up from my last post regarding staffing and litigation risks, this post concentrates on “what we know” and “what we can control”. For example, what we know is that there simply is not enough staff (clinical and even non-clinical) to fill a provider’s vacant positions. The world in general knows this and the press, is oft to repeat a narrative where staff shortages cause negative outcomes, long service waiting times, delayed or deferred admissions, etc. Not a week goes by where I don’t see a news story, on-line, in-print, or on television focused on a health care staffing concern of one level or another.
As I mentioned in the prior post, the heightened alarmism and focus is not helpful, for the most part. For example, I’ve watched Union organizing activity in a number of markets, seeking to organize nurses, based on the staffing issue – not enough and thus, unsafe for nurses and patients. I get the issue, but I don’t see a solution. Raising the issue to a fever pitch, demanding that providers hire more staff that don’t exist, pay more for staff that does exist, etc., isn’t solving the problem. I get that management may even seem callous to the issues and some may be but most senior leaders I talk with are truly trying to do everything they can to improve bedside/patient-centric staffing levels. The simple reality is that there are more openings than bodies capable and willing to fill the positions.
A case in point is recent organizing activity in Wichita, KS (Sedgwick County). Union activity in health care in this area/community has been historically, very low. For professional nurses, it’s been virtually non-existent. At two Ascension hospitals (national Catholic health system) nurses voted within the last nine months, to organize. Here’s a short quote from the Union regarding the push for organization: “We need better staffing, we need Ascension to get serious about recruiting and retaining nurses and we need to have a better safety workplace violence program,” said registered nurse Sara Wilson. “Nurses are in danger when we go to work and Ascension needs to take care of their nurses.” As one would expect, there is truth within that statement but also, to be frank, very little that Ascension can do to create more staff. Provider resources are simply not robust enough to just see the staffing issues as economic. More money isn’t the answer. Ascension closed 2022 with a negative 3.1% margin on losses of $1.8 billion. Among the major health care bankruptcies, one quarter were senior care providers (last several years).
Knowing what we know regarding staff supply, the concern is can some things be done and what can we control. We know money won’t solve the staffing problem as this too, is of finite quantity. Likewise, we also know that money is a substitute concern for the real core issue of simply, not enough bodies for the tasks demanded in patient care. In other words, money becomes the tangible point, but we also know, that money won’t employ more bodies or staff. I know many providers that have RN openings that offer $100K in wage opportunities plus sign-on bonuses and benefits with no takers for these opportunities. A quick Indeed search of Chicago, IL using the job title “nurse” produced 9,133 positions within a 25-mile radius. Similarly, Google searches for nursing positions provide multiple, big dollar references, for travel positions ($5,500 to $7,850 per week). And, according to the Bureau of Labor Statistics, over 203,000 openings will occur every year for at least, the next decade (https://www.bls.gov/ooh/healthcare/registered-nurses.htm).
What can be done primarily, for any provider, is first and foremost, a concentration on retention. The second thing is to listen to staff, not as a show, but as a real effort in understanding what their concerns truly are. Some are fixable, some are not but all providers should be honest. Open the books so to speak and share the economics. The third, as I have discussed repeatedly, is improve management and reduce bureaucracy wherever possible. An organization can significantly improve its bedside hours (actual) by reducing as many tasks as possible, that have nothing to do with patient care. Trust me, there are many things that health systems and providers require staff to do that has nothing to do with patient care or regulatory requirements. Fourth, analyze the work-flow and make sure that proper duties are assigned to proper staff. I have seen all to many environments where RNs are doing work that could and should be handled by techs, social workers, chaplains, therapists, etc. For example, I can’t even begin to count how many times I have heard about therapists dropping a patient back into his/her room and putting on the call light for nursing to come and toilet the patient or have other care needs met. Crazy. Unless the need was a medication administration, the therapist can and is qualified to assist the patient with a toileting need to get fresh water, transition the patient to bed, etc.
When I see litigation and I see a lot as my firm (H2 healthcare) has an active compliance practice and a nationally known expert in litigation support (defense, not plaintiff), the focus is nearly always on “nursing” not doing something or being somehow, the causation for the bad outcome. Now, with staffing coming to the surface as a root cause (not enough bodies), the question begs, what kind of staff and in what amount. No doubt the focus will be on nursing but perhaps, that focus is rather shallow. As I pointed out in the paragraph above, maybe the staff numbers are better than thought just poorly organized and used (health care is notorious for “silos”) and layers of management.
What a provider can control, aside from numbers of staff which, we know is difficult to totally control, is how staff are allocated especially in relationship to patients and their needs. Below are my top six things providers can control/do with regard to staffing and to reduce litigation risk.
- Make sure staff in number and capability, match the generalize facility census trend. This means in number (patients) and care needs. I know providers like full beds with patients that garner high reimbursement but, there is a balance. Strike the balance as much as possible and let staff know it.
- Work as teams – not just as nursing, and therapy, and social work, etc.
- Stop employing managers that were the “best” clinicians. Employ managers that actually know how to manage, Likewise, give these managers true accountability and authority. They must be able to do their job and not have to “punch up” to get things done. Good management reduces litigation risk.
- Put staff in positions where decisions are made and give them real results and a “piece of the pie”. Gain share for reduced call-ins, turnover, staff referrals (new).
- Keep staff apprised of staffing levels and make sure they know how staffing decisions are made, etc. Don’t whitewash the issues. Staff complain about being short-staffed which is the “killer” when it comes to litigation. Too many depositions of nursing staff start with staffing level discussions. Focus on real conversations, daily, about team and everyone being engaged not just “CNAs and Nurses”.
In my next post, I’ll dig a bit deeper into this concept (risk and what can be done), especially concerning the evolving and expanding trend of litigation in Assited Living Facilities.
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’.
Is a Paradigm Shift Starting in Senior Living?
A number of years ago, post-acute/senior living analysts, etc. started warning of a coming paradigm shift for skilled nursing and home health. I started writing and advising about this shift well over a decade ago. The signs were obvious.
- Rapid expenditure growth as a percentage of Medicare/Medicaid outlays.
- MedPac warnings to Congress of rising profit margins in these industry segments.
- Increasing reports from the OIG and other agencies substantiating billing abuse and likely, widespread fraud.
- Rapid agency and outlet growth.
- Rising per unit prices and cap rates.
- For SNFs REIT deals and rental rates that were clearly, unsustainable given the market conditions and policy trends.
- Overall reimbursement dynamics including passage of the Affordable Care Act that foretold stable to shrinking Medicare reimbursement.
- Increasing Medicare Advantage penetration.
- Increasing Medicaid funding problems at the state level and increasing conversions of state programs to Managed Medicaid platforms.
The handwriting was on the wall and even without a clear crystal ball, I began warning those that would listen (from clients to students to industry watchers) that the post-acute provider segments of SNF and Home Health would face stiff headwinds and the unprepared and unimaginative, suffer losses and operating struggles unlike any in recent times. As much as I loathe the “I told you so” speeches or references, the proof today is in the news constantly. One need (only) reference Genesis, HCR/ManorCare, Skyline, Signature, Kindred, Amedysis, Gentiva, etc. (I could go on) now versus ten years ago (or less) for validation. The paradigm of ratchet-up fee for service Medicare encounters, particularly therapy related, increase outlet span, more is better, bigger is better, don’t worry about quality metrics, and find ways to minimize top line operating costs, etc. ended with a resounding THUD (you (and I) knew it would).
To the question posed as the title: Is Seniors Housing/Living starting a similar paradigm shift? Because such shifts start gradual and pick up momentum as the “trend” winds strengthen, its easy to claim “no” or to ignore the bits and pieces that are the harbingers; a nod to a point-in-time. Lately, I have had an increasing number of conversations with learned folks and those heavily invested in the “housing” elements (independent and assisted) of senior living. To a one, they all remained bullish for principally ONE reason – demographics. Each points forward to a rising or swelling tide of senior citizens; byproduct of the great Baby Boom. With confidence, I hear an argument for a demand proposition that current and even near term supply, won’t meet. This is in spite of the current reality that supply is greater than demand and occupancy is declining consistently, not increasing. The Brookdale argument is thus: Give it time, the residents are coming and occupancy will improve. I am skeptical.
The economist in me is uncertain that other factors aren’t more in-play than accounted for or buffered by the “demographics” justification. For example, the notion that this Baby Boomer customer is the same customer that has been consuming and driving the current seniors housing paradigm is I’ll argue, a false premise. Their sheer numbers alone won’t guarantee supply consumption. Students of economics and history will find lessons aplenty such as the death of steam locomotion, coal power generation (though not fully dead), wired television, cassette format video and audio, etc. The customer bases for these products or industries never shrunk and in fact, they grew in number and purchasing power. Other dynamics shifted the demand curve ever so slightly for alternatives initially, then rapidly as the same came to the market and price points shifted. The fallacy is that demographics by number alone mean a sustainable market.
Seniors housing has a very elastic demand curve. The crux of price elasticity is that the greater or higher the price, the smaller the number of buyers. For the demographics of the coming wave of future seniors to be a demand boon for seniors housing, they (the seniors) must have purchasing power to consume the supply of product at the price levels current and future. This group must also have limited or no more than present, alternatives to the product (a fixed base residence). As their power to consume is measured by wealth, wealthier folks demand more alternatives and have more options. For example, a woman with a million dollar net worth and a $200,000 annual income can arguably buy 90% of the new automobile models (personal use) produced in a given year. She may buy a Rolls Royce or a Honda Fit. A woman with a ten thousand dollar net worth and a $20,000 annual income probably can’t buy any of the new automobile models and will need to use public transportation or acquire a very, very used car. As is the economic constant, shifts in wealth and substitution products across the price spectrum will influence supply or products and the prices thereof. Today, there is a bit of a supply inequity in seniors housing and as such, occupancy has trended down.
The supply inequity is seen via the homogeneity of the product, especially product that has come on the market within the last decade. Where occupancy is consistently high, the product is market or less than market, priced. Value-based products with or without services are more occupied than their above market competitors today. Fewer in number, their supply is consumed plus and in constant demand. I know today of no market or below market (subsidized or rent controlled) seniors housing that is good condition, in a good location (not crime ridden, etc.) that isn’t full or close to full – constantly.
To be clear, I am not anti or even really too bearish (yet) about seniors housing, assisted or independent. I was never totally bearish about the SNF and Home Health sector, just the paradigm that was operative. I believe that strategically aligned, market-sensitive product and providers will always do well. Unfortunately however, I also believe that too many seniors housing units and operators are “me too” driven, emphasizing a “same-same” approach. I find it hard to believe that the look-alike, feel alike, same amenities, different location or even similar location can be justified by “coming” demographics when similar providers, at similar price-points are at five-year occupancy lows. All too often, I am reminded of conversations I had with SNF operators telling me their justification for acquisition and the price per bed paid was: “We are different. We’re going to drive Medicare census to 40 plus percent, raise acuity and RUG levels, utilize technology to be superefficient, etc.” And when I would say “how” and show me where “you” had done this before and maintained high-quality, etc. and negotiated far better rates with the growing Medicare Advantage market, I got the typical ‘ignore’ response. Suffice to say, I was never proven wrong.
Because I will be asked, here’s what I am seeing that suggests the beginning of a paradigm shift for seniors housing – biggest for Assisted Living but still palpable and impactful for Independent Living.
- While the demographics are good, the economics of the demographics are not as good. Baby Boomers will simply not have the same economic wealth and thus purchasing power of their parents and grandparents. While some will have done well, the decades of their work and maturation cycle did not see the same kind of wealth and economic expansion that occurred for their parents. One simple measure very much tied to seniors housing is worth review – residential real estate. Most Boomers will have had multiple homes and have consumed large portions of their equity to “buy-up” or to adjust lifestyle. Their parents did not (home equity loans didn’t exist). Most Boomers also will have started with a more expensive home basis than their parents and thus, will not see the value appreciation. For example, I know many seniors that bought their home for $40K and sold it for $400K – appreciation of ten-fold. For a $100,000 Boomer investment to reap the same, the appreciation would need to be $1,000,000. This is just price. If I factored in life-cycle cost, the net is far worse (higher interest rates, taxes, etc. over the ownership period).
- Seniors housing is not getting cheaper. In many regards, driven by market forces to be more opulent, bigger, better, more amenities, etc., it is getting more price inefficient (cost per square foot needed to sustain). As the price rises, the product demand becomes more elastic and the number of consumers economically capable of consuming, fewer.
- Alternative products are increasing and ala carte service providers, expanding. Where staying “at-home” was not much of an option a decade or so ago, it is becoming easier with technology and service availability that suppports, aging in-place.
- Planned development communities that are geared toward active, younger seniors are consuming a market segment between 65 and 80. These communities have club houses, maintenance services, etc., and are typified by private homes, developed to accommodate early level disabilities (no stairs, grab bars in bathrooms, etc.).
- Because of the point prior, the migration age to seniors housing is increasing accompanied by additional disability. The more frail and disabled this cohort becomes, the more difficult it is for the provider to keep costs low as operations must support the true needs of the resident. This is a real problem for Assisted Living as occupancy today is often predicated on catering to a much more frail and debilitated client, many who as little as five years prior, would have resided in a nursing facility.
- Lastly, the market trends and information are illustrative of the harbingers of a paradigm shift.
- Weakening cap rates and per unit values
- Over-built markets with product, still coming into a market already below 90% occupied and trending lower.
- Brookdale (enough said)
- Chinese investors pulling back from the sector – more cautious investing
- Period over period occupancy declines in the industry – Assisted now at just over 85%!
- Per NIC 22 of the top 31 markets saw occupancy decline, quarter over quarter
- Rising cost of capital and fewer starts (finally). This may actually be a good thing as the sector needs some leveling forces.
- Rising labor costs. Again, this may be a good thing.
- Federal and state-to-state pressure for Assisted Living regulatory actions. Again, this may be a good thing as too many ALFs are over their-skis in terms of capability to take care of their resident populations.
- For providers reliant on Medicaid-waiver clients to bolster occupancy, we are seeing rate “reductions” consistently in these programs and know of more to come (no increases yet).
In an upcoming article, I’ll offer some thought on what is working and why and where the market will be for seniors housing and why over the next decade or two.
Health Care Leadership: Why its Hard, Why Many Fail and What it Takes to Succeed
The bulk of my work centers around gathering data, analyzing trends and working with the leadership of various organizations to implement strategy or more centered, strategies. The process is iterative, interactive and always fascinating. Throughout my career, I’ve worked within (virtually) every health care industry segment and seniors housing segment. I also counsel and have worked with entities that buy, sell, invest in, consult with, account for, finance, and research health care and seniors housing businesses. Its my work with the latter that is the genesis of this post and my decades of work with the former that is the “content”.
There are two fundamental reasons why health care leadership is hard and different from leadership duties in other industries: 24/7 demands and the immediacy of the customer to the enterprise. Health care and seniors housing (regardless of the segment specific) never closes, has no true seasonality, and demand can increase and decrease with equal force and equal pace, almost entirely related to external factors and forces. Pricing for the most part, other than seniors housing, is almost immaterial and unrelated to revenue. No other, non-governmental, business is as regulated and scrutinized and mandated transparent than health care. Likewise, no other business has the mandate that the full array and intensity of all services must be available 24/7, on immediate demand, with no ability to defer, fallow, or limit. Even a 24 hour PDQ won’t have all services available constantly (if the hot dogs run out, they are gone!).
While other industries will have close customer contact, health care has a unique, and intimate relationship with its customers. In SNFs, Assisted Living Facilities, Seniors Housing, etc. the customer is present for long-periods (years). In hospitals, the customer is present for hours, days, up to weeks at a time (the latter rare unless we are talking LTAcH). In the health care setting, the enterprise has total responsibility for all needs of the customer – great to small. The quality of care and service to all needs matters and is measured, reported and today in many regards, tied to compensation. Back to the PDQ, the over-done hot dog costs the same and there is no governmental entity that maintains a hotline for customer reports and investigations regarding the quality of the hot dog.
In health care, there is a very unique and in many ways, perverted twist concerning the customer relationship. The customer today is a Dr. Jekyll/Mr. Hyde manifestation. No other industry has customers that are bifurcated as such – the payer being a consumer unique and separate from the actual present being. Health care entities, to be successful, must satisfy both and manage the expectations of both, seamless and fluid to each party. I know of no other industry where on any given day in a hospital for example, where it is likely that of 300 individual inpatients there are dozens more of the payer/insurer consumers requiring unique attention, simultaneously. Miss a step, miss a form, etc. and the payer consumer refuses to pay for the human consumer that is receiving or received the care.
Because of the “constant” nature and customer relationships (coupled with many other reasons of course), health care leadership is hard. It is hard because these two fundamental components are nearly, completely, out of the control of the leader. The leader can only react or respond but truly, never change the paradigm or structure and always, in terms of the payer customer, sit beholding to the rule changing process and bureaucracy of the payer customer. This last element can be unbelievably insidious. For example, in the State of Kansas, dozens of SNFs face grave peril in terms of solvency because the State cannot efficiently certify eligibility for Medicaid for qualified seniors. The delay has left dozens of facilities with Medicaid IOUs at six digits and climbing – the human customer receiving care, the paying customer bureaucratically inept and unwilling and incapable of paying its bills, and the SNF sitting with no real recourse.
Given the above, its frankly easy to see why so many leaders fail or simply, give up. The deck is stacked toward failure. On the expense side of the equation, because of mounting regulation, fewer elements are within a leader’s control. With a rare exception, revenue is completely beyond control in terms of price and reimbursement for services provided. With RAC and other audits, revenue initially earned can be retrospectively recast and denied. (The PDQ six month’s later decides to recoup payment for the hot dog because, in its infinite wisdom, you didn’t need to the eat the hot dog or you should have made a wiser food choice). The overwhelming variables that can contribute to failure in a micro and macro sense for a leader are not lessening. His/her organization is open and under scrutiny, 24/7. He/she must oversee and be accountable for the health outcomes of a human customer that in turn are interpreted by the payer customer (remotely), subject to alteration, and retroactive scrutiny. Today, success isn’t just based on what occurred at the point of service but after the service concluded. The enterprise is at-risk for human behavior (compliance and non-compliance) of the consumer for not just days post service but months. Further, the enterprise is at-risk for the satisfaction of a consumer whose behavior and lifestyle may have significantly contributed to his/her need for care and service initially. As one executive told me recently; “We have to tell people the truth about their disease, figure out how to make it sound good and nice, and hope that we have done so in such a life affirming fashion that the patient will give us 5 stars for service. Figure that one out”. Alas, perhaps failure is inevitable.
Aside from failure correlating to burn out or shear “giving up” (the average large system executive tenure is less than 10 years), the failure in leadership that I see resides primarily in two areas. The first is an inability or lack of willingness to realize that the paradigm is constantly changing today and the pace of which, is accelerating. It is human nature to seek equilibrium; to pursue elements of stasis and calm. The same ( is) anathema to leading a health care enterprise. The second area is aversion to risk. Precisely because of the first point, taking risk or being capable of tolerating large elements of risk is imperative today in health care. The best leaders are true entrepreneurs today. They see opportunity and are willing to pursue it with vigor. They find the niches and pursue them. Every bureaucracy and rapidly changing industry paradigm begets opportunity with equal pace and ferocity. For example, the growing “private, non-reimbursed” service sectors in health care that continue to grow and flourish because of and in-spite of the heavily regulated, price tied market. I know of and have consulted for, provider groups that have moved further away from Medicare and managed care to private payment with phenomenal success. Was the strategy a risk? Yes. Most would not take this type of risk. I am harkened however by the notion that at times, the greatest risk present is the risk of doing nothing.
Successful leadership and leaders today, those that I know, have the ability to think systematically and algebraically – to solve the industry polynomials with all of the variables. They are inquisitive by nature and unwilling to accept the status quo, regardless of where and why. They embrace the famed Pasteur quote: “Chance (luck) favors the prepared mind”. They also have the soul and panache (tempered) of Capt. Jack Sparrow (from Pirates of the Caribbean). They like risk and have the entrepreneurial heart and mind to innovate and move fluidly through problems and challenges such that the same are opportunities. They don’t allow their enterprises to become complacent or bureaucratic.
Today, success is about better – better products, better service, and better care. Payers are demanding accountability and want an increasing level of care and service for lower levels of payment. That is the paradigm and it is moving to higher levels of accountability and lower levels of overall payment. The best execs know this and don’t quibble with it (much). They realize that success if about adapting the enterprise accordingly while finding the pliable spots that such an environment creates. These spots are service lines, system enhancements, productivity improvements, and different levels of patient engagement. Similarly, they realize the risk limits of concentration – too much exposure to certain payers. They have seen this trend coming and have already moved. For those still trying to reverse or slow the trend, this is where failure first begins ( the search for stasis in a rapidly changing world).
Getting CCRC Feasibility Studies Correct … and Other Studies as Well
In my consulting career, I’ve done a fair amount of feasibility work (market, economic, etc.). Similarly, I’ve done a fair amount of similar analyses, primarily related to M&A activity and/or where financing is involved (debt covenant reviews, etc.). Heck, I’ve even done some bankruptcy related work! I’m also queried fairly often about feasibility, demand, market studies, etc. such that I’m surprised (often enough) that a gap still exists between “proper” analysis and simplified “demographic” analysis. Suffice to say, feasibility work is not a “one size” fits all relationship.
I’ve titled this post “CCRC feasibility” principally because the unique nature of a true CCRC project provides a framework to discuss a multitude of related industry segments simultaneously (e.g., seniors housing, health care, assisted living, etc.). Starting with the CCRC concept, a set of basic assumptions about the feasibility process is required.
- Demographics aren’t the arbiter of success or failure – feasibility or lack thereof.
- Demand isn’t solely correlated to like unit occupancy, demographics (now or projected), or for that matter, how many units are projected to be built (following the Jones’ as a qualifier).
- Capital accessibility isn’t relevant nor should it be.
- National trends for the most part, are immaterial. Local, regional and state are, however.
- Projects pre-supposed are projects with inherent risk attached. This isn’t an “if you build it, they will come” type exercise. The results shouldn’t be thought of as a justification for a “specific” project already planned.
The last point typically generates a “heresy” cry from folks and certain industry segments. Regardless, I am adamant here in so much that true feasibility analyses determines “what makes sense” rather or as opposed to, justifying that which is planned (or the implication that the client is paying for a study to justify his/her project). Remember, I am a fan of the fabled quote from Mark Twain attributed to Benjamin Disraeli (the former Prime Minister of Great Britain): “There are three types of lies….lies, damn lies and statistics”. As an economist, I have deep appreciation for this as all too often, I see analyses that smack of this latter type of lie.
(Note: The source of the actual “lies, damn lies” quote is still a mystery…thought initially to be said by Lord Courtney in 1895 but since, proven invalid.)
Carrying this feasibility discussion just a bit further, the approach that I recommend (and use) incorporates the following key assumptions about seniors housing (CCRCs) and to a lesser extent, specialized care facilities (Assisted Living, SNFs, etc.).
- The demand for seniors housing, true housing, is very price elastic. Given the elasticity, all demand work must be sensitized by price. The more specialized or unique the project might or may be, the more sensitive the demand elasticity becomes (greater or lesser).
- Local economic conditions matter – tremendously. This is particularly true for CCRCs and higher-end seniors housing projects, especially real estate conditions.
- Regional and state trends matter particularly the migration patterns, policy issues, job issues, etc. Doubt me? Let’s have a discussion about the great State of Illinois (for disclosure, I have a home and office in Illinois).
- Location(s) matter. I incorporate location/central place theory elements in all of my feasibility work and analyses.
- Demographics are important but not in the normative sense. Yes, age and income qualified numbers are important but education and real estate ownership, location and years residency in the market area(s) can be as impactful.
- Competition is important but in all forms. Given the demand elasticity of seniors housing, the higher the price, the greater the wealth status required of the potential consumer, the greater the options available to that same consumer.
- Ratios matter. The demographics are important but the ratio within the demographic correlated to the project, within various locations, etc. is “money”. (Sales folks love this stuff). How many seniors does it take to fill a CCRC?
Because no one project is equal to another, feasibility work and like analysis is both (an) art and a science. I liken the process to cooking. Recipes are key but taste and flair and creativity are important as well. Honestly, knowing the industry well from an overall perspective is ideal – like being a chef trained by the masters! When I see flawed analysis, it typically comes from a source that follows a recipe; a recipe for market analysis, etc. Knowing the industry, having operated organizations or facilities, being trained in quantitative analysis, etc. separates good or great from average. Remember Twain/Disraeli.
So to the title of this post; the correct or proper methodology for feasibility studies and similar analysis (sans some detail for brevity and not in any particular order)….
New Facility/New Location
- Location Analysis – in economic parlance, the application of elements of Central Place Theory. This includes a review of the site in relationship to key ranked variables such as market/demographics, accessibility, staff/employment access, proximity to other healthcare, other services, etc.
- Pricing – what is/are the core pricing assumption(s)….I’ve written on strategic pricing models on this site. If I am doing the pricing work, I apply the concepts in the Strategic Pricing presentations and worksheets found on the Reports and Other Documents page on this site.
- Demographics – I’ll use my pricing data and my location analysis to frame my demographic analysis. Aside from age and income, I’ll look at migration patterns, education, career history, etc. plus I’ll review the information on a geocoded basis to refine market relationships between customers and other competitors.
- Demand Analysis – From the demographic data and tested against the pricing, I’ll build a demand analysis and a penetration analysis that provides a range of likely target customers, within the market areas, give the pricing information, for a particular product. Historic migration and market area occupancy of like accommodations is used to sensitize the demand analysis.
- Economic Analysis – This is a review of current market conditions and trends that can impact the project’s feasibility, positively or negatively. Real estate, income, employment, business investment, economic outlooks, policy implications such as tax policy, etc. are all key elements reviewed.
- Competitive Analysis – What is going on within the area/regional competition of like or quasi-comparable projects is important as a buffer or moreover, a stability (or lack thereof) check. I like to look at all potential or as many as practical, comparable living accommodations – not just seniors housing (condos, apartments, etc.).
Expansion Projects
I will complete a major portion of the above with less time spent on location analysis and pricing work (though pricing is still key for accurate demand). I have watched organizations cannibalize their own market share and occupancy levels with expansion projects so accurate gauging of current and pent-up demand is critical along with conditional trends (economic, competitive analysis, etc.).
M&A, Financing, Etc. Projects
Again, all of the above work is relevant but depending on the circumstances, I will incorporate benchmark data from industry sub-sets. For example, for SNFs I look at compliance information, CMS star ratings, staffing numbers, payer mix/quality mix and of course, federal and state reimbursement and policy trends. When I review covenant defaults and provide reports, I narrow the analysis based on the core nature of the default but most often, the issues of late are occupancy, pricing, and revenue models versus fixed and variable cost levels. Pricing work is often key along with a review of marketing strategies.
Is there more to this topic area? Of course and this post isn’t meant to be exhaustive nor a text-book supplement. It is however, a ready framework that can provide guidance to those looking at conducting or contracting for, a feasibility, financing or market analysis. My advice: Getting it done right the first time saves money, prevents future problems, and assists with positive outcomes for any project or purpose.
Modern Health Care Risk Management
The second most important function an executive and/or a governance board conducts (second only to planning) is risk management. This key leadership function is evolving rapidly primarily due to the evolutionary movement around compliance (ACA, CMS, etc.) and the payer focal shift from episodic, procedural care to outcome or evidenced based care, pay-for-performance, etc. Similarly, as government policy shifts so does commercial market dynamics with like movements toward pay-for-performance and disease management. While the core concept of “enterprise” protection remains the same, the scope today is different, the breadth wider and the responsibilities and tasks more structured than say, ten plus years ago.
Risk management is the term that encompasses a series of activities, programs, policies, etc. that work (ideally) together to protect and secure the overall enterprise/organizational identity, value, market share, legal structure and by downstream relationship, the stakeholders/shareholders. Its activities, etc. are passive and active. Passive activities (examples) include the purchase of insurance and implementation of firewalls and data security systems. Active activities include audits, training of staff, QA/QI activities, customer/patient engagement programs, etc. The purpose of this post is to focus on the “active” elements and in particular, the most important elements today given the evolving environment and the new risks emerging. The purpose is to frame a model of risk prevention culture rather than an environment fraught with rule deontology and protectionism. The latter tends to breed its own kind of risk(s) in addition to the risk(s) it seeks mitigate.
I like to think of effective risk management plans today as having six key elements. Importantly, the plan is not operative while the elements are. The plan is what the organization uses to monitor the completion (activities), ongoing improvement (identification and address of organizational weakness and vulnerability), and accountability of management in identifying and managing risk. Remember, these elements are the “active” side. I, for sake of the theme of this article, will assume that providers acquire adequate insurance policies utilizing industry professionals in their development plus that they maintain modern IT infrastructure to secure patient data, etc.
- Organizational Focus on Patient Care Quality and Service: This isn’t about slogans or marketing rather, it is about having an overall and deeply integrated culture around patient care outcomes and satisfaction. In a pay-for-performance, competitive, ACO world, this element is key.
- Executive and Board involvement in QA/QI, especially at the highest organizational levels.
- Compensation for management and executives incorporating (heavily) patient outcomes and satisfaction to the degree that all other elements are dwarfed by the weight given to this measure.
- Monitoring in-place of key patient outcome data and benchmarking of the same.
- Monitoring of response and wait times. This element is key as the goal is to create response times as near as possible/practical to immediate or to minimize wait times wherever possible.
- A program of patient/family engagement that includes surveys, focus groups, etc.
- A grievance resolution system that is open, accessible and seeks to address concerns as instantaneous as possible. The approach must be around resolving concerns without delay and bureaucracy.
- Staff training focused on customer service, QA/QI, communication and dealing with patient/family stress, trauma, etc.
- Engagement of staff in a “bottom-up” program or approach whereby lower level line staff are engaged in all training, QA/QI processes, mentoring, etc.
- Audit Contractors and Sub-Contractors: The use of contractors such as physician intensivists (hospitalists) and therapy companies, imaging companies, lab providers, environmental service providers (laundry, housekeeping, etc.) is on the rise as organizations seek to control costs and improve efficiency. Contractors, etc. yield new risk as their conduct, care, service, etc. create a risk transferable directly to the parent organization. The risk of course, is multi-fold. First, as applicable, is care risk (outcomes, service, competence, qualifications, insurance, etc.). Second, is labor risk (legal status, background checks, etc.). Third, is billing risk and compliance risk. If the contractor is involved in any element of care that is billable to a payer (Medicare, Medicaid, commercial insurance), the organization must assure complete compliance with billing and care provision rules in order to negate billing fraud or inappropriate claims risk (risk of non-payment or worse). Summarized, organizations must monitor and audit, externally, the work of contractors. Immunization clauses within contracts cannot supplant audits of risk areas proportional to the scope of the service agreement. For example, the organization must audit its medical staff, the care provided, documentation, billing as applicable, patient contact and satisfaction, response times, etc. The same is true for any care service contractor.
- Billing Audits: This element is particularly crucial for government programs such as Medicare and Medicaid. Providers today must get in the habit of reviewing their claims submitted to payer sources, particularly the government. Two huge risk areas are present today. First, focused fraud actions against providers under the False Claims Act. Audits here are all about making sure that what was billed was actually provided, documented, necessary and compliant. Second, billing accuracy such that claim submissions are “clean” and “accurate”. Denials for inaccuracy, etc. can lead to imbalances in error rates and thus, probes and claims held for review. The latter negatively impacts cash flow and staff productivity as extra work to justify payment is required. I also recommend that organizations be very, very careful about compensation programs tied to revenues and claims, especially without counter-balancing elements and a strong audit program. I like billing audits that are third-party conducted, benchmarked against regional and national data (our business should look like others in the region and nationally) and occur episodically and randomly as frequent as monthly and certainly, no less than quarterly.
- Organizational Transparency and Staff Engagement: A huge risk area providers continue to face is the mixed message and incongruent messages sent to staff from leadership and at the highest levels of the organization. The impetus behind so many False Claims investigations and actions undertaken by the DOJ (Department of Justice) isn’t smart federal auditors – its disgruntled staff. Whistleblowers are the fundamental impetus behind False Claims allegations and actions. Mitigating this risk is simple (beyond doing the right things of course). Organizations, especially leadership, must be transparent and as open and candid as possible. The point here is that there really is no reason to not share goals, plans, operating data, etc. with staff. When I was a CEO, my office was never locked and thus, work and files on my desk and credenza. My compensation was open and I did not hide what I made or how I made it. Not too surprising, across decades of running large healthcare organizations, I never had a fraud allegation or an allegation of any impropriety. Staff knew what the corporate plans were, how they achieved compensation and bonuses, etc. We gain-shared so staff had opportunities to reap reward as the organization grew and performed. Staff engagement means at the planning and implementation levels. It also means active programs of training and a large amount of dialogue regarding why the organization does what it does and where the right and wrong lie. The same Whistleblower mentality is also fundamentally sound when it is used to police bad internal behavior, including that of management.
- Focus on Competence: A simple thing but rarely do I see this element boldly, prominently emphasized. Competence is about the ability to do what is required at the professional, validated level. It is about validation of core skills and abilities within a framework of education and testing. Organizations that focus on developing and maintaining staff and managerial competence limit risk inherently. All together, risk is often a byproduct of incompetence and protection of a weak, status quo. If excellence and competence is demanded and the systems engaged and in-place to assure it, then there is little room for marginal, sub-standard and incompetent to remain. How does an organization focus on competence? First, eliminate old, worn out HR policies and job descriptions and performance evaluations and replace the same with competency and behavioral standards. Competency standards are the elements one must demonstrate and perform as part of the job at a repetitive, proficient level. Behavior standards are the elements of personal conduct and accountability that the organization demands (uniforms, attendance, inservice attendance, etc.). Evaluate standards routinely, move in new skills, refine old skills, educate and test. Require ongoing passage and demonstration and be intolerant of employees and managers that can’t/won’t meet the competency and behavioral requirements. Competency standards are required for ongoing employment; reward for performance thus can only and should only occur when the base standard is consistently exceeded.
- Be Public: By employing all of your constituents in oversight, the likelihood of getting surprised or being caught off guard is minimized. Be public as possible with standards, expectations, contact information, grievance steps, etc. Be open to all criticism and frankly, demand (as much possible) feedback regarding just about anything in the business. No reason that business goals can’t be public and yes, even margin goals. Heck, explain why margins are necessary. Engage the broader universe and community and ask for input and reactions. People will tell you the good, the bad and the ugly – the latter being where potential risk lies. Force the conversation and the accountability and in doing so, limit a large area where risk can fulminate.
Boards of Directors: Success, Mediocrity and Sometimes, Failure
As a follow-up to a recent post on Boards of Directors and corporate governance (http://wp.me/ptUlY-gq), this post addresses how boards promote success, can often drive mediocrity and in some cases prompt organizational failure. The take-away where success, mediocrity and failure occur isn’t structure, terms or committees rather, a consistent excellence or break-down in terms of structural clarity, roles, and organizational focus. Governance which exists, regardless of the framework, to enhance and perpetuate corporate/organizational value, reputational integrity, and shareholder/stakeholder security and return is the foundation for success.
If there is a single condition more preeminent than another that drives mediocrity and failure for a board it is conflict of interest. This condition is not unique to non-profits or for-profits but in my history, I encounter it more frequently in non-profits, likely due to the inherent lack of compensation available for directors. The non or limited compensation component in non-profits is more ripe for a “quid pro quo” reward structure in which, the director is a de facto player in the organization’s business via a vendor relationship of some sort. Even in the best of circumstances, the vendor representative on the board scenario defeats the concept of independence producing an air of duplicity and insider dealing. If judgment is clouded, opinions suppressed or decisions focused on the inter-relationships among directors and the entity beyond the absolute best interest of the organization, governance cannot be optimal.
Effective governance requires independence and to the greatest extent possible, a board level series of tests and policies that promote independence and police conflict. Below are the common tools I find most helpful in achieving and maintaining independence.
- Recruitment of individuals that are unrelated in any regard, to the organization (not vendors, no familial employment, no familial relationships, etc.).
- Policies that require annual disclosure of employment, board memberships for the director and director’s family, investments where applicable, etc. This is to insure that directors don’t have relationships, ownership, investments that mask independence. Note: Disclosure is not enough as once disclosed, remedy becomes the key.
- An annual review of major vendor relationships such that the same is given to each director as part of his/her annual disclosure. If a director is anything more than a passive investor in a vendor relationship, the director is no longer truly independent.
- In healthcare organizations, annual background checks with the OIG, licensing boards (where applicable, DEA (where applicable), and criminal checks are warranted.
- Policies that require reviews concurrent with major capital purchases, capital projects, mergers/acquisitions, etc. to assure that independence remains among the board.
The element second in importance to independence at the board level is role clarity and policies and organizational structure that clearly delineates the role of the board, the duties of directors, and the key performance elements for the board. Again, these pieces lacking is a certainty for organizational mediocrity and/or, potential failure. A board’s primary objective is to assure the viability, health and well-being of the organizational entity. In this realm, its role is clear. Where I have seen boards struggle and thus the organization, is when a lack of this clarity exists. Below is my top seven item list that identifies where boards can assure role clarity for the board and each director.
- The Board must have a job description or functional description and should each director.
- Shareholders (and for non-profits, stakeholders) must be identified (not individually necessarily). This element is where I see non-profits struggle mightily. For example, for a non-profit CCRC shareholders/stakeholders are not residents. Residents are customers, even in entry-fee communities. Shareholder/stakeholders are for certain, any holder of public debt and any holder of mortgage paper. Major vendors and insurers are stakeholders as well. The definitional clarity begins at the “organizational level” in terms of where lies, for a board, the duty to assure organizational stability, reputational solidity and organizational viability and financial fluidity. Yes, customers such as residents are tangentially impacted when things aren’t well-off but truth be examined, a debt failure causes irreparable harm to residents if a board isn’t engaged in securitizing organization viability.
- A formal function, policy, etc. for board performance review and director performance review.
- A formal function and structure at the board level for long-term planning – financial, strategic, etc.
- A plan at the board level for CEO review, retention and succession.
- A formal function for board development and education.
- A communication element for discussions/feedback from/with shareholders/stakeholders.
Returning to the title: Success at the governance and thus, organizational performance level is when the board is truly committed and has put into place, the structural elements necessary to fulfill the boards primary duties;
- Assure independence.
- Focus on the financial, reputational and legal risks and the securitization thereto, of the organization.
- Plan for and understand, the environment in which, the organization operates.
- Assure plans for operating in this environment meet and exceed, the requirements in the second bullet above.
- Understand and have policies and procedures in place, that clearly delineate the role of the board from that of management. Maintain a fertile environment for a qualified CEO to garner appropriate feedback, support, reward, and security. Boards need to assure, for the organization’s viability, retention of high-performing leadership and the succession thereof.
- Be open and literally virtual, to shareholders/stakeholders.
When I encounter mediocrity and unfortunately, failure or the likelihood of failure, I see the same set of issues repeatedly. As before, I have seen these most often among non-profits but not exclusively.
- Lack of independence for directors. In some circumstances, the conflict of interest is so clear (directors in high-level, influential posts with major vendors) and in some cases, subtle where familial relationship are involved. Suffice to say, in non-profits this is one is the most prevalent.
- Involved or have a tendency to become involved in operational issues. This element is perilous in so many ways. First, the board exists to function separate and distinct from management. A board’s job is to procure and secure, competent capable management not to dabble in operations. If management is underperforming, it is the board’s duty to identify the performance gaps and to assist management in achieving correction but not by becoming involved in operations. Likewise, boards that find the need to meddle don’t empower management to take risks, drive performance and seek innovation. Think about it: The presence of board members in operations creates sufficient tension for management and thus, management tends to guard what it does and how it does it.
- Insufficient knowledge for the industry that the board operates within. Boards need education sufficient to understand the key risks, shareholder interests, etc. in the applicable industry. Uneducated boards equal poor decisions.
- Lack of knowledge and engagement with stakeholders and shareholders. Remember, this is a key issue even for non-profits. My non-profit clients goof this one all the time. They believe that the shareholder/stakeholder is whomever they are serving (patients, residents, etc.) and thus, they lose sight of where the organizational risks and commitments (legal and other) truly lie. Boards engage shareholders and stakeholders, management engages customers. I can literally write dozens of pages of case studies where boards, especially non-profits, lost sight of (or never had in sight), the actual stakeholder/shareholder and ultimately, what happened and how painful it was.
- Lack of a risk management structure at the board level.
- Lack of a process and commitment to strategic and financial planning.
- No or a deficient process for board recruitment, review and performance measurement.
In the final installment of this three-part series, I’ll cover best-practices for governance, specifically in the healthcare/post-acute care/seniors housing environment. In so doing, I’ll cover the issues such that regardless of tax status (exempt or taxable), the information is relevant.
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