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Hospice Tumult: The Beggining of the End?

Over the past couple of months or so, I’ve watched rather intently, the developing storm clouds in the Hospice industry. Suffice to say, what is now apparent takes the form of a perfect storm.  For industry “watchers”, the news regarding Vitas and the amalgamation of federal false claims act suits is a reflection on the core flaws in the present industry model.

For years, I have written and lectured on the market and reimbursement flaw dynamics that exist in the industry and in the current Medicare Hospice Benefit.  Apparently, the Feds via way of the OIG and Department of Justice have finally caught up.  The citations within recently disclosed actions against Vitas, San Diego Hospice, Harmony Hospice in South Carolina, etc. confirm what I have stated for years: the industry has more “providers” than true, organic patients. By organic I mean patients that meet the Medicare hospice benefit eligibility criteria (likely terminal within 6 months). CMS by virtue of continuing to neglect a revamp of the eligibility criteria and reimbursement methodology is complicit in allowing the growth in false claims activity.  The incentives provided within the present Conditions of Participation and the benefit and reimbursement language, are so misaligned with how patients utilize and access hospice services that providers seeking volume and revenue growth have teased and breached, the False Claims Act line.  Minor modifications and clarity such as follows would have shifted the paradigm away from the fraud temptation.

  • Payment modification by place of care.  Lower payments to hospices caring for patients in institutional setting such as SNFs and ALFs has always been logical and prudent.
  • Standardized assessment and certification criteria on the front-end.  SNFs have RUGs, hospitals DRGs, and Home Health has OASIS yet hospice remains a simple certification with no specific assessment criteria for achieving Medicare eligibility for the benefit.
  • Shorter, more dynamic re-certification periods with focused contractor review and documentation standards required at set periods.  Think Part B therapy for example as somewhat of a template (emphasis on somewhat as the MMR process is flawed as well).

The similarities between the above referenced cases and frankly, others that have risen before, are striking.  In each case, the core of the underlying cases are agencies and entities struggling to justify their financial and business existence via admission of only truly organically terminal patients or for that matter, those that are most probably terminal.  By estimation and research within my firm, this population is roughly 65 to 70% of the total patient volume in the industry currently.  Stated another way, fully one-third of all current hospice enrollment is questionable by Medicare definition and therefore, a False Claims Act liability for the agency.  Additionally, a group that is organically terminal or has a high degree of probability of becoming such within a thirty-day window, exhibits a much shorter length of stay profile than what is common among Vitas, Odyssey/Gentiva, etc.  These factors contribute to the plain conclusion that generating year-over-year growth in margin, volume, etc. is improbable unless a solid portion of this growth is suspect and thus, potentially fraudulent.

Now enters the Department of Justice with a literal cruise missile launch across the industry bow. Anyone in the hospice industry mistakenly believing that the massive action against Vitas/Chemed won’t affect them isn’t paying attention.  A la federal investigations and actions against Amedysis, once the largest home health company in the nation, the Vitas action will re-shape the fortunes of the industry and the providers therein. The industry will logically contract and the largest providers that dominate will naturally adjust their business model or face similar investigative actions.  Stays will shorten, discharges will rise, nursing home and assisted living facilities will see less aggressive marketing activity and lower engagement from the respective hospices.  Logically, margins will tighten and census will erode.  Ultimately, CMS will re-visit the fall-out from the Vitas cases with revised regulatory language designed to preempt another rise of fraudulent activity.

And what of Vitas/Chemed?  If I parallel the fortunes of Amedysis, an analogous journey, Vitas is all but done. Certainly, there are phoenix cases but this is not logically one nor was Amedysis.  Vitas’ business model is steeped in what caused the problem as was/is Amedysis’ business model.  Public companies can’t exist without investor confidence and without a record of growth in terms of earnings.  Ultimately, earnings can only be derived by volume growth and revenue growth.  Vitas will not be in a position going forward to continue on this path and certainly, not without substantive changes to how its done business.  Again, logically improbable. In the parallel universe where Amedysis resides, their stock price has fallen from the mid-fifty dollar range to the ten-dollar range today.  Consensus analyst opinions place the price per share target between $5 and $8.  Moving a step further, Amedysis’ value has shrunk by plus 50%.  A similar experience awaits Vitas/Chemed, if not worse.

In a follow-up post, I will review the specifics regarding Vitas and provide thoughts on what I believe, happens next.

May 14, 2013 Posted by | Hospice, Policy and Politics - Federal | , , , , , , , | Leave a comment

Hospice Outlook: 2013

The smallest provider centric benefit (by outlay) under Medicare is also one of the fastest growing in terms of expenditures and agency growth.  Lately, it’s arguably become the most controversial in terms of payment and expenditure growth correlated with fraud.  In the past year, the industry saw multiple large-scale investigations and ultimately, legal actions and OIG/Department of Justice involvement in no less than a dozen hospice/Medicare/Medicaid fraud cases.  The most notable are the cases involving Vitas: Notable for the number and repetition of similar circumstances supporting the fraudulent activity.  Virtually every major case emanated via a Qui Tam or Whistleblower trigger and as a result, are indicative to me that more of a similar nature are brewing (given the length of time it takes for a Qui Tam to mature and become public and/or rise to an event where the OIG and DOJ will participate).

In compiling this Outlook, it is terribly difficult to divide the current and disclosed fraud activity from the other issues that are organic to hospice and the reimbursement and health policy issues on the horizon.  For this industry segment in particular, the fraud issue truly frames many of the programmatic and reimbursement policy issues “front burner”for 2013 and FY 2014.

Summary Comments: As I have written before (and is the consensus within my firm), the industry is truly stagnant and mature in terms of provider capacity and truly “organic” patient volume.  By organic I mean patients that fit the Medicare definition of “terminal” and thus, hospice appropriate.  Where we see the fraud cases and peel through the layers, we see systemic enrollment of patients that don’t meet the qualification requirements.  This trend is wholly related to too many providers, particularly providers with a business model requiring growing earnings and market share, existing in a “no growth” universe.  And while we have seen some episodic and recent data suggesting somewhat higher utilization of hospice as a locale of “death” (see JAMA release of 2/6/13) for cancer patients, the data only corroborates what we have said for years: Where the increases lie are in “organically terminal patients”, typically cancer and typically for very short, intensive stays.  JAMA supported the same stating that increased hospice usage is occurring for very imminently terminal patients, after multiple care transitions and ICU/inpatient hospital utilization, when futility is the real precursory reason for the referral.  Truly, this data is not indicative of a resounding growth trend or a demand movement.  It is affirmation however, of what I have said before: Hospice is a niche in the continuum and while arguably, a superb niche’, it is not widely embraced or understood in the healthcare community and as a result, patients are over-treated and under-referred.  The U.S. mentality is more is better and unfortunately, that a cure for whatever ails us is possible and frankly, deserved.  In short, we don’t handle death or aging well and thus, we inefficiently use resources to the tune of billions for the very last days/weeks of life.

Given the above comments, the outlook for growth is flat.  We can’t confirm nor forecast, any fundamental shift toward more patient utilization of hospice, sans the very short, last days of life pattern noted in the JAMA article.  The growth trends that have typified recent statements from Vitas, Odyssey and the like are suspect at best as they are occurring primarily in institutional, post-acute settings such as SNFs and more lately, ALF (Assisted Living Facilities).  This trend is the core of “questionable” qualified patients – not truly terminal.  Slicing this to what is probably or most likely, a true level of patient volume (those that reside in SNFs and ALFs that are  in fact, terminal according to the Medicare definition) we believe reduces the institutional volume at present by half or more.  In other words, if we match the Medicare definition of terminal (with a high degree of certainty due to current patient condition, diagnoses and co-morbidities) with the average hospice census (estimated) in SNFs and ALFs at any one point in time, better than half of all patients presently enrolled don’t fit the definition and nothing about their present condition or status, suggests that they will at any time in the near future.  How do we know this?  Our own clients and experience combined with data provided via Medpac, CMS and the OIG.  Factoring this data further along with our assumptions, the industry if right-sized to meet only true demand should shrink by 50% or more!  As the bulk of patients enrolled by Vitas and Odyssey (and the like today) are not home bound but institutional bound (non-hospice inpatient or residence), it is logical to conclude that organic demand is far less than the current number of enrollees.

Medicare: Virtually 75% of all hospice days of care are paid for by Medicare and Medicaid (Medicaid about 4%) and moreover, given this ratio Medicare becomes the arbiter of payment rates and off-level rates for private insurance.  Briefly, as Medicare sets payment policies and rates, so conform private insurance plans.  We rarely see per diem or major payment differences in terms of rate or coverage levels between private plans and Medicare, unless the private source is a true hybrid plan.

Our Medicare outlook is for no increase to a 1% decrease and while Medpac has recommended a market basket update of .5%, the net effect to rate because of the continued phase-out of the BNAF and imputation of productivity adjustment factors, the rate will stay flat if not actually move slightly down.  We are forecasting a rate decrease of 2.5% if Sequestration cuts to Medicare occur.  There appears to be no real movement of support for rate increases as industry profit margins under Medicare remain in the double digits for for-profit providers and in the high single digits for non-profit providers.  For Medpac and CMS, these margins are deemed acceptable if not “high” for the proprietary sector, especially given the meager capital requirements associated with the industry (not brick and mortar, equipment driven).

The biggest wild-card for Medicare is whether steps are taken to realign payment patterns for FY 2014.  We see this as only a 50-50 probability at this point.  Rate realignment would conform to Medpac recommendations whereby early stay rates would be marginally higher to accommodate the work associated with the initial referral/enrollment process, establishing base-lines, etc. and then taper down after a pre-determined day of stay (say after 14 days or 30 days, though we don’t think 30 is logical).  Rates after this initial period would drop and then potentially, ramp-up for the period where death is more imminent to reflect additional care needs pre-death.  Why we believe this kind of change is only 50/50 probable lies in the depth of the details necessary for such a system to work.  We also know that CMS lacks the back-end capability to administer effectively, such a system.

Of greater probability is some additional certification requirements in the form of documentation and substantiation, additional quality measures and a more directed focus on the part of CMS’ intermediaries on claims review.  We also think CMS will provide some insight into where they may go with respect to some future regulatory language regarding the relationships between hospices and SNFs and ALFs.  We suspect that there will be survey duties added to the SNF survey and the Hospice survey manuals, with more specific requirements governing disclosure, referral practices, contracts, QA tasks, etc.  We believe this will materialize in 2014.

OIG Work Plan for Hospice: As mentioned above, the 2013 OIG work plan includes specific targeted activity for hospices.  Repeating from the 2012 work plan is the focus on hospice marketing materials and the relationships between hospices and nursing homes. Delineated in the plan is OIG’s concern regarding inappropriate admissions to hospice coverage arising from nursing homes with a direct concern stated regarding potential financial incentives between the nursing home and the hospice.  This focus arises from prior year’s work as well as Medpac reports of nursing home patients admitted to hospice that are non-terminal and/or have questionable diagnoses such as failure to thrive and dementia, non-indicative of imminent death and corroborated by longer stays compared to traditional in-home patients.

A separate element in the work plan new for 2013 is a focus on General Inpatient Care utilization.  The OIG comments that the GIP utilization trend may be indicative of patients placed in this level but not requiring the increased care.  They specifically note their suspicion of GIP utilization tied to the action of the hospice to garner additional revenue.  We find this a bit curious as the industry does have GIP caps in-place, tied to the overall days of care for a hospice provider.  We also haven’t seen much trend change here rather, seeing a greater increase in up-coding with Continuous Care.  Certain providers seem willing to push the Continuous Care level more aggressively than others which we find somewhat “odd”.  The oddity lies in the fact that Continuous Care is difficult to staff, tough to justify and rarely ever warranted (or proper) if the patient is residing in an institutional setting such as a SNF.  Our take is that while the OIG may have some cause to look at GIP utilization the questionable trend for certain providers lies in Continuous Care (doubtful that it is truly warranted and more doubtful that the requirement of care is actually provided or met).

Other/Miscellaneous: We are seeing a growing albeit somewhat modest trend of hospices unwilling to either accept patients requiring certain more clinically complex treatments or declining coverage for these treatments.  Specifically, palliative radiation or chemotherapy, tube feedings, dialysis, and certain medications such as antibiotics and cardiac medications.  We tend to see the movement in proprietary hospices vs. non-profit hospices although we have seen non-profits become more adverse or cautious in dealing with these issues either via admission or coverage.  Managed correctly, all of the aforementioned clinical interventions make sense within hospice and can be a marketing advantage for providers who are keen at balancing the risk/benefit equations.  Hospices looking for a competitive advantage in a tight market/industry, would be wise to explore greater or expanded avenues of clinical complexity/intervention in terms of palliation rather than constraining viable and reasonable options.

February 15, 2013 Posted by | Hospice | , , , , , | 5 Comments

False Claims Act: Providers Beware

Lately I have fielded a growing number of questions regarding various applications/uses of the False Claims Act and Medicare billing inquiries.  What is disconcerting about these inquiries is their source; too many from providers or provider organizations.  One in particular arises out of an acquisition and this bears special note and comment which, I have provided toward the end of the post.

To start, the False Claims Act in summarized fashion for healthcare providers relates as follows;

(a) Any person who (1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; (3) conspires to defraud the Government by getting a false or fraudulent claim paid or approved by the Government;. . . or (7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person . . . .

(b) For purposes of this section, the terms “knowing” and “knowingly” mean that a person, with respect to information (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.

What this boils down to for providers is that a False Claim Act violation can occur either via deliberate act such as knowingly submitting a claim that is false or when a provider fails to seek knowledge that is common, acting in reckless disregard to the truth or circumstances surrounding the claim.  This latter element creates major risk for providers in terms of their use of outside contractors to provide Medicare covered services under Parts A or B.

Taking the two major facets of the genesis of False Claims Act violations separately, the first element of a deliberate act is fairly straightforward.  The majority of risk here occurs when providers bill for services not provided or not required by the patient. For example, in reviewing recent False Claims Act cases in hospice, the deliberate act(s) consist of placing people into the Medicare Hospice benefit that are by disease state, not terminal and/or in other instances, billing for continuous care and not providing the service.  In SNFs and arising out of the latest OIG report on SNF Medicare billing practices, upcoding patients to higher RUG categories where services were not provided and/or, not required.  Each example is a fairly clear, deliberate act or activity to garner reimbursement (bill the government) for care not required or not provided.

The second facet is more nuanced in so much that a provider can be only tangentially connected yet still guilty of completing a False Claims Act violation.  This element occurs when providers utilize third-party contractors to provide certain services yet fail to use due care to determine whether such services were actually provided and/or warranted.  In this situation, a provider of a Part A or Part B covered service using a third-party contractor to provide some element of a care service, cannot eliminate the False Claim Act liability by hiding under a veil of a contractual relationship or agreement; especially if the provider caused the contractual relationship to exist and benefitted by the contract (logical).  Not knowing a violation occurred or could occur via not employing basic due diligence and standards is considered a willful act under the False Claims Act and thus, a violation subject to remedy and penalty.

Getting more concrete: A provider (SNF, Home Health, etc.) for example, under Part A uses a therapy contractor to provide physical, occupational and/or speech therapy. The contractor provides certain information to the provider, as required by contract, to generate Part A claims.  At a later date, claims are reviewed or probed via a ZPIC or RAC process and determined that the same are suspect and unjustified.  The provider states that the contractor is to blame yet, cannot substantiate that it took any due care to audit the contractor’s work or to review claims for accuracy and integrity.  The contractor in this case may or may not be tangentially liable for the False Claims Act violation, based on the provisions of the contract, but the provider is “totally”. Why?  The provider is the organization that fraudulently or falsely billed Medicare and caused the violation, even though its claim that it did nothing knowingly or intentionally (all the contactor) is used as a defense. The False Claims Act does not require deliberate action in perpetrating the event merely a disregard of the truth or the events (hear no evil, see no evil, speak no evil).

With the CMS OIG directly stating its intent to spend more time reviewing SNF claims, particularly those that fall into high therapy RUG categories, and the industry-wide reliance on third-party therapy contractors, SNFs need to pay particular attention to the definitions within the False Claims Act.  Of principal importance is the requirement or lack thereof, of direct action.  Merely a failure to hold contractors accountable and to exercise due diligence as part of the claims submission/billing process can lead to a False Claims Act violation.  As I have written before, the simple action (or in this case, inaction) of failing to benchmark RUG levels against national and regional data, to employ an outside resource to periodically test claims, and to monitor the basic provision of care from contractors is all that is required to fit into the category of “reckless disregard” for the truth or accuracy of claims submitted.

Lastly, as mentioned initially, False Claims Act violations that arise from an acquisition, while rare, can occur.  I know of one specific case and the circumstances are daunting and troubling.  When an acquirer assumes a provider number from an acquired provider, the assumption comes with liability for prior acts.  As no statute of limitation exists for fraud, the acquirer is thus the same provider as the original provider via assumption of the former provider number and status.  CMS does not differentiate as to the circumstantial aspects of liability for fraudulent actions between providers.  While a purchase agreement may stipulate limitations on liabilities arising from prior actions of the former provider, CMS’ enforcement and remedies don’t translate similarly.  In other words, CMS will seek enforcement and issue remedies against the current provider, even if the acts were committed by the former provider.  The sole remedy for the acquirer is contractual, removed entirely from CMS.  As contractual disputes require time and remedy through arbitration or court proceedings, enforcement and other remedies from CMS do not.  The actions taken by CMS are independent of the contract between the seller and the acquirer.  Again, the “we didn’t know” defense is useless as the assumption is on the part of CMS, “you chose to assume the provider number and the liabilities that inure thereto (such that they existed)”.

My best advice to acquirers, and I have gone down this road many times, is to obtain new provider status via application and issuance of a new provider number.  I know this process can be a bit timely and bureaucratic but nonetheless, it stands as the only surefire way to immunize the acquirer from former actions of the seller, at least where Medicare. billing irregularities and False Claims Act violations are concerned.  The alternative remedy is extensive and thorough pre-closing due diligence on claims and frankly, this process is more tedious, onerous, and expensive than obtaining a new provider number.  Additionally, sellers can get “cranky” from the required probing to complete a thorough due diligence of claim activity, such that deals can easily morph negative.  Finally, never and I mean never, assume a contract during the acquisition, especially where the contract is for a third-party provision of care and services tangential to Medicare/Medicaid claims.  Negotiate new; for safety sake.

November 27, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal | , , , , , , , , , , , , , | Leave a comment

Five Things Every Healthcare Executive Should Focus On: Updated, Revised

More than two years ago I wrote a post regarding “five” things every SNF administrator should focus on and lo and behold, a reader asked late last week if I would revisit this subject.  She (the reader) is not an SNF administrator so she asked if I could focus more globally; sort of a “best practices” approach.  While each health care industry segment has its nuances, in reviewing my travels, the challenges and successes leaders have, where failures occur, and where careers are made and sustained, I quickly found commonality in approaches and focused competencies.

Healthcare leadership is complex and very dynamic.  The alchemy is nearly one-part inquisitor, one-part psychologist, and one-part theoretician.  Those that do well and thrive, regardless of industry segments, are today “global” thinkers capable of transitioning to tactician seamlessly.  They are outcome oriented and know the pieces of the puzzle well enough to be bull**it proof.  They think and act as if synergism is their main duty and they understand (acutely) the law of unintended consequences.   Bottom line: They see cause and effect and constantly seek ways to shorten the distance between the two.

Industry issues aside regarding changing reimbursement, regulation, etc., the focal core that I find as key and thus, displayed in action by the successful executives is as follows.

  1. Quality: This is an oft used buzzword but very skilled and successful executives can articulate this for their business immediately.  In healthcare, quality is all about tangible outcomes that patients experience.  Going one step deeper, quality today is also about a measurable outcome at a particular cost.  In my economist jargon, this is about utility and warranty.  Utility is maximized in healthcare when the payer and the patient receive a desired, tangible outcome at a market or below market price.  Warranty in healthcare is about the outcome’s sustainable benefit to the patient and the payer.  Technical yes but this theory is a key focal area for healthcare executives.  Think about it tangibly in light of today’s issues.  Hospital executives need to understand this because it impacts re-hospitalizations.  The outcome must match the warranty or in other words, the care must be complete such that avoidable readmissions are low or non-existent.  For SNF executives, the same holds true but with a slight twist.  The SNF executive must deliver excellent care all while minimizing the risk areas that lead to re-hospitalizations such as infections, falls, and medication errors.  As a core competency, the best executives I work with didn’t wait for the government to tell them to reduce their falls, reduce their re-admissions, etc.  They knew these issues years ago and had already understood the relationships between quality or utility and warranty.
  2. An Outside-Inside View: Where I find failings in healthcare leadership it almost always starts with executives that believe their challenges and their industry are utterly unique.  They not only bought the healthcare executive manual but they memorized it.  They seek only peer knowledge or interaction, often I believe to validate that “they” are doing the same thing everyone else is doing.  Alas, the story of the Lemmings on their way to the sea is cogent.  What I see as key competency among the best is that they have an “outside-inside” view competency.  This outside-inside view is characterized by looking beyond their industry at analogous problems or issues and seeking solutions that are applicable.  Yes, healthcare is unique but certainly not so unique that strong parallels in marketing, customer service, project management, systems design, etc. can’t be found via other industries.  Across my career, the best ideas I’ve used came from other industries – not healthcare.  I simply altered the concept to fit the situation.  Philosophically, “the coolest things in life exist in places where their aren’t any roads”; a quote from a former camp counselor to my son.  Developing this competency is all about forcing oneself to explore well beyond the industry noise, rhetoric and ideologies.
  3. Small Spaces and Closet Organizers: As odd as this heading sounds, it makes sense to me when I see it applied.  The industry has run through its hey-day where bigger was better and, “if you build it, they will come”.  Really strong executives today have learned how to creatively adapt and re-adapt and they realize the core competency of “revenue contribution” per square foot is the new reality.  This competency area is all about revenue maximization and in a go-forward universe of revenue stagnation via reimbursement cuts and flat payments, using space efficiently and keeping the closets organized rather than overflowing with stuff not needed nor ever used, is the requirement.  Gone are the days where more is better or additional lines of inventory make sense.  This focus is truly a trend from manufacturing where realities on plant size, productive capacity and just-in-time inventory came to roost many years ago.
  4. The True Meaning of Health Policy: This is about the Paul Harvey requiem; “the rest of the story”.  Health policy impacts are point in-time in terms of regulatory implications and reimbursement implications but woven together, a trend is evident.  This competency area is about knowing what the policy trends are, where Medpac is going and why and how the enterprise led should position accordingly.  I have written repeatedly that regardless of regulation and new laws like the PPACA, core issues about entitlement financing, sustainability of funding, etc. will beget certain and permanent changes in health policy.  Ignoring these realities and the resulting policy trends is akin to committing hara-kiri with a butter  knife; no one blow is fatal but the culmination of all blows leads to a slow, painful death.  Much is trending right now regarding networks, ACOs, bundled payments, pay-for-performance, accountability, fraud, etc.  Knowing not only the implication of each but how the same is directing the future is a core executive competency.
  5. Freakonomist: OK, I’m stealing from a book title here but the point is simple: Healthcare executives need to understand at a certain level, core human behavior and economics.  I’m not talking about finance or reimbursement but behavioral economics.  One of the major problems or arguably, the single most demonic problem with healthcare today lies in the axiom that “what get’s rewarded, get’s done”.  We have lived too long on the native belief that acute, fee-for-service, episodic medicine or care is how the U.S. health system thrives.  Thus, we have overspent and over-taxed the system without regard to a potential breaking point.  We have arrived at such a point.  Today’s healthcare executive must realize this core reality and to survive and thrive, re-define his/her leadership to developing systems and services that prevent utilization or revise utilization to more of a minimalist plane.  Those that embody the philosophy that “better is better” rather than “more is better” will understand this innately.  This competency is about “solving” core problems and not chasing root, flawed ideologies of the past.  Profit and success will come via innovation and system-thinking not from finding new ways to exploit Medicare and Medicaid.

November 13, 2012 Posted by | Assisted Living, Home Health, Hospice, Senior Housing, Skilled Nursing | , , , , , , , , , | 3 Comments

Catching Up, Part II: Home Health and Hospice

As the week concluded (sort of), I’m about half-way back in terms of cutting through the stacks of research and notes that I compiled through August and into early September.  While time away from work is necessary for my sanity, it certainly promotes insanity upon return.  Below is Part II of “catching up”, entirely focused on home health and hospice.

Home Health: The last few years have been rough for the home health industry and in particular, the major players such as Gentiva and Amedysis. A quick replay of “what” has transpired over the past few years is key to understanding why the industry is where it is today.  Beginning in 2009 and 2010, Medpac issued (in its annual report to Congress), unflattering findings regarding industry growth and profit margins.  Integral to its comments was a focus on the growth tied not only to rate but to utilization patterns – particularly therapy services.  Of course, Congress is somewhat to blame for a rapid increase in home therapy under Medicare as it believed that patients were denied adequate therapy services in their homes due to poor reimbursement rates.  In 2008, CMS altered a  “bonus” provision based on therapy visits to combat a perceived reduction in therapy services to home bound patients as the “stay” or coverage period elongated.  Previous, the bonus of a few thousand dollars kicked in after 10 visits.  The change incorporated bonuses for visits beyond six, and then beyond 14 and then beyond 20 – each incrementally higher.  As one would suspect, HHAs altered their service provisions to maximize visits and bonuses according to the new schedule.  Medpac sounded a subtle alarm.

In the summer of 2011, the Senate Finance Committee began an inquiry into the billing and utilization practices of the home health industry under the Medicare program.  Particular focus was paid to the biggest providers (Amedysis, Gentiva, Almost Family, LHC, etc.).  In October of 2011, the Wall Street Journal published an article foretelling the Senate Finance Committee’s findings.  Stopping just short of accusing Amedysis, Gentiva and LHC of fraud, the article indicated that these providers effectively “gamed” the reimbursement system and structured referrals and visits to maximize reimbursement under Medicare.  The irony (in the story) is that all providers in every segment, follow similar practices perhaps just a shade less overt.  The trigger to the inquiry was less the behavior suspected but more the profit margins the major companies were posting on Medicare book-business of plus 80%.  In short, 17 plus percent Medicare margins was the problem.

Fast forward to present, the industry has struggled since with the major players Amedysis, Gentiva, LHC,, all producing earnings reductions and corresponding lower share prices.  Amedysis stock price has dropped from a mid 2011 price of  $38 per share to $15.50.  It had sunk as low as $10 per share in January.  Gentiva went from the mid-twenty dollar range in early 2011 to under $3.00 in mid-fall of 2011.  Today, it has rebounded to $12,50, still more than $10 per share under its average price in early 2011. Almost Family fell from the upper $30’s in early 2011 to $10.50 in January.  It has since rebounded to $21.50, more than $15 dollars off the highs of 2011. LHC went from $30 per share in early 2011 to $18.50 today, falling to $13.00 in early 2012.  For Amedysis, the biggest Medicare provider of home health, earnings are off 65% compared to a year ago and revenue has shrunk by $17 million over the same time frame ($12 million of which is Medicare).  The sole reason for the changes in fortune for the “big” players and the industry?  Medicare payment reductions.  This stems from an overt attempt on the part of CMS to reign-in the industry growth and to lower the profitability of Medicare as a payer.  Conceptually, as reported by Medpac, Medicare is and has been, too generous in its payments.  The belief is that a reduction in payments to more normative profit levels (whatever that is in government speak) won’t limit access or reduce significantly, the number of providers in the industry.  So far, from my vantage point, this is accurate.

Across most (virtually all) business elements, the prospects for the Home Health industry as far as Medicare is concerned, remain bleak.  The primary reason is continued reimbursement cuts under Medicare.  On October 1, the 2013 Medicare rate reduces by .10%.  While this is almost good news, the possibility of sequestration cuts (the fiscal cliff, mandatory spending reductions from the budget impasse deal of 2011)  layering on an additional 2% reduction looms as more bad news.  For Amedysis, a valued agreement with Humana ended on September 1.  This contract evaporation will have a negative effect on go forward revenues and earnings.  For all of the industry, future guidance on market basket rebasing foreshadows more bad news than good news as rate rescission via rebasing is a continued certainty.  If this isn’t enough to chill growth and earnings prospects near term, the implications going forward of a Value Based Purchasing program under Medicare for home health ices the cake.  This pay-for-performance approach, mandated under the ACA, will require substantive changes for the industry in terms of mirroring utilization, cost, and quality data across a series of industry metrics.  Like hospitals, the proposed structure (as evolving) under a VBP approach provides withholds for poor performance and offers incentives for improvement.  The true net result of these types of programs is lower outlays – a clear initiative to reduce utilization and to target certain behaviors economically – pay for performance.  I have the report to Congress submitted by the DHHS regarding implementation of a VBP program if anyone would like a copy – e-mail me at or add a comment to this post with a valid e-mail and I will forward the PDF to you.

Home Health summary from me: Be prepared for some rocky roads ahead.  The best, good news for the industry is the continued development of ACOs and other integrated care models and networks.  Home Health is a key component in ACO models and thus, for those agencies heavily invested and infrastructure ready on the management of chronic diseases, the ground going forward is fertile, assuming supporting outcome and patient satisfaction data confirms the “agency case for support”. Alas, the Amedysis, Gentiva, high-flying, heydays are over but room still exists for growth and profitability for those than can culturally shift and revamp their revenue and profitability models to the “new” reality.

Hospice:  This is another industry segment that is struggling somewhat as census gains for most providers are flat and utilization trends bear no long-term “real” growth.  For the past eighteen months, I’ve watched the hospice industry rather closely and even closer, the fraud cases opening and ongoing.  As I have written in previous posts, there is a “core” simple reason so much fraud is occurring in the industry; too many providers chasing too few truly, organically terminal patients.  For ease of definitional purposes, organically terminal is a patient that presents with a condition or series of conditions that sans aggressive or interventionist treatment, will die within six months or less.  True, a few live a shade longer but in actuality, fully 90% should and would pass away inside of six months.  Using just this definition, the Medicare definition, a quick analysis of utilization data suggests that the industry is likely over-sized by nearly 33% (a third).  Essentially, one-third of the agencies could fold (although geographically, this may be problematic) and the patients that fit the Medicare definition would continue to be adequately served.

Some will no doubt ask (or holler at me), “how do you know”?  The answer: Simple math.  Looking at utilization data produced by Medicare by diagnosis and length of stay tells me that the fastest growing diagnoses are neurological disorders, debility/failure to thrive and dementia.  When I pull-out clear neurological diseases that are organically terminal, I’m left with a hodge-podge of “all other”.  Correlate the growth in these diagnoses with the accelerating trend in longer lengths of stay and a picture of questionable certification becomes visible.  Next, I look at length of stay by places of care to see “where” this trend is leading.  Oddly enough, there is no evidence of expanding lengths of stay occurring when the “place” of care is at “home” or within a hospice inpatient environment.  The visible expansion is occurring when the patient resides in a nursing home or an assisted living facility.  Finally, I circled back to the OIG report on the industry from 2011 and their findings that 82% of the claims reviewed for patients residing in nursing homes did not meet the Medicare coverage criteria.  While no doubt some of these claim errors are a result of poor documentation and clerical errors, the evidence seen almost daily in and across industry related fraud actions points to an inordinately high rate of “specious” certifications.  To the point one step further, the same report noted that “hundreds” of hospices had more than two-thirds of their case load coming from nursing home patients.

It is hard to conclude otherwise that the industry is not fraught with an over-supply of providers and thus, a underwave of potentially fraudulent claims.  What is evident from the cases involving Vitas, Gentiva/Odyssey, SouthernCare, HospiceCare of Kansas, and the Hospice of the Comforter (and I could go on) is that without stretching coverage criteria determinations and inducing referrals and kicking-back dollars for less than qualified patients, the industry would be a good amount smaller in provider numbers than where it is today. De Facto: If you have to cheat to survive, you have no real business stability.  As with home health, I suspect rocky roads ahead for the industry and increasing regulatory scrutiny industry-wide.  The good providers will survive but not without having to navigate some minefields.

September 18, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal | , , , , , , , , , | Leave a comment

What’s Trending: Catching Up

Probably the biggest trend as of late is my tardiness in getting these posts out on-time…sorry.  My end of the week (last week) got distorted as I needed to attend a meeting with regard to a Medicaid shift in Kansas from fee-for-service to “managed”.   As I have been through these conversions or switches before, it’s always interesting to watch provider reaction, the MCO presentations, etc.  I hate to be cynical about these transitions but past-experiences suggest that the Kansas experiment will suffer from the same issues I have witnessed in other states – a rather bumpy take-off.  States that have a large rural Medicaid population tend to struggle to get networks built and enrollment in-place “timely” (ala Kentucky’s issues).

In one regard, I’m actually glad I’m a tad behind as this weekend produced some rather interesting political news sure to focus debate more directly on healthcare.  This said, below is what I am following now and expect to follow as a trend for a while yet.  In addition, this week’s Fall Out issues are a tad different as they come from readers and industry insiders and thus, are a shade different “in perspective”.

Politics and Healthcare: Moving on from last week, politics remains on my radar for a few reasons.  First, as I admitted last week, I’m a policy and politics “junkie”, fascinated by the mix of fact and fiction and what “sticks” where.  Second, there is a great deal of healthcare meat on the table and with the inclusion of Paul Ryan on the Republican ticket, the Medicare/Medicaid political barbecue has just been lit.  As a confession, I do know Paul quite well and have worked on past campaigns on his behalf.  He’s an oddity in political circles as his substance is far greater than his political profile.  So as the gloves start to come off, my watch is how the issues regarding entitlement spending play out.  The cold hard reality is this: Entitlement spending on Medicare, Medicaid and Social Security is greater than the total revenue intake of the Federal government from all sources.  Healthcare reform via the ACA widens this gap for minimally, the next ten years.  After this ten-year period, its anybody’s guess as to where the spending line will level.  Embedded in the ACA is a series of cuts to Medicare of $700 plus billion to make the numbers sort-of work.  What we don’t know is the impact of Medicaid expansion and how state’s will respond (either in favor of or against).  The debate forthcoming is about as stark of a difference in approaches as found in recent political cycles.  Romney/Ryan would eviscerate as much of the ACA as possible, opting for a managed, fee-for-service landscape that includes primarily federal block grant funding and privatized initiatives to contain costs and assure access.  The ACA as we all know by now, is more directive in its approaches, utilizing governmental policy and insurance plans to garner greater levels of coverage while funding ideal innovations in delivery (ACOs, etc.).  I liken the ideological difference to hands-on and hands-off.

Med B Therapy Exception Change: Like many, I’ve been waiting to see how this rolls-out and now we have some answers.  CMS has foretold of changes to the current outpatient therapy cap exception process under Part B, moving the process from a “deemed” exception methodology to one requiring authorization from a Medicare contractor (ala prior authorization beyond the cap).  Providers will be able to submit exception requests to a designated contractor every 20 days and per the law, receive a decision within 10 days.  If no decision is made in the 10 day window, the request is deemed “granted”.  Denials with reasons are given to the provider with a chace to re-submit.  This first-phase rolls out October 1 and providers can begin processing requests in mid-September.  The current cap limit is $3,700, separated between PT/Speech and OT (non-aggregated).  On my radar is the industry reaction and how providers will begin to formulate their strategies for attaining exceptions via this new process.  I’ll be more interested to see how many exceptions are denied initially, come mid-September/October 1 as I suspect the number to relatively high and variable between contractors.  Rarely do these initiatives work as intended and rarer still is uniformity of decisions between the Contractors.

Medicare Cuts and Sequestration: In the heart of the political season, the Obama administration is required within the next 30 days to announce the implementation of a 2% Medicare cut, effective January 1, 2013.  This “cut” is the result of current legislative failures (and no legislation presently on the table) to produce a $1 trillion package of deficit reduction.  Recall, last year’s Super Committee created a legislative compromise to raise the debt ceiling via an either-or approach: Either find a deficit reduction package or automatic cuts would occur.  This is the “sequestration” implication; required action without new legislation.  Within the next month, the Obama administration is required to report to Congress its plan for implementing the 2% cuts – Medicaid is not part of the cuts.  Congress then must decide to accept the plan or revise the plan.  What I am watching is less the substance of the report (where the cuts come from) and more the political drama that will ensue.  Congressional dysfunction is engrained in Washington so I am doubtful that a plan revision is even possible.  I suspect a piece of legislation that evaporates the issue via bi-partisan delay (the Potomac two-step) until after the elections.

Medicaid Expansion:Back on my radar thanks to one small piece of news from Washington this past week – a kinder, gentler tone on how state’s can or cannot expand and the CMS reaction to such a decision. Essentially, CMS has taken the tone of “doesn’t really matter to us” and states can somewhat take their time.  The new “position” came from the CMS head of Medicaid and CHIP.  The message is that states can choose to expand as early as January 1, 2014 or delay if desired.  Her only message is that delay will result in non-optimized federal funding (additional dollars from the Feds to implement expansion).  In effect, the message is take-it or leave-it and we’re fine with either – a stark difference from earlier messages that incorporated threats fof dire funding cuts for states that didn’t get on the expansion bandwagon.  The Supreme Court’s decision clearly changed the CMS rhetoric.  My watch now is how states decide to craft their bargain with the Feds for FY 2013.  As I have mentioned in prior posts, state budgets are a mess and full funding of expansion is tantalizing to some and to others, a scary proposition.  Again, I think November’s elections are the make or break point for many “red” governed states.

My Fall Out issues this week come from readers and industry insiders.  Here is their take on what they see;

  • From a reader and colleague in the Infusion/DME industry in response to my last week’s What’s Trending….To your point on audits within each sector of healthcare, us infusion providers are being hit with CERT, ADR, and now PERM audits.  We have decided to stop sending certain claims to Medicare because every claim is triggering a CERT audit.  Wonderful effect on my cash flow.  The PERM audit put me over the edge…I need to send the medical record to the PERM contractor due to a $1.90 payment.  That’s right, one dollar and ninety cents.  I called the contractor in Baltimore, and asked if I could just send a check for the money in question, because it will cost more in electricity to print paper copies from our EMR…the person was not amused. They have no sense of humor.  Seriously, these audits are putting a major crunch in resource allocation.  Each CERT request is generating 30-40 pages of documentation.
  • From a colleague who reads and who I often discuss economics and policy issues with (he’s a risk consultant)….  

% of the 2012 Federal Budget of $3.8 Trillion

Medicare, Medicaid and Other Healthcare          $ .836 Trillion              22%

Social Security                                                               .798 Trillion              21%

Defense                                                                            .722 Trillion              19%

Interest on the Federal Debt                                       .228 Trillion                6%          (sub total 68%)


Other Welfare Programs                                      .722 Trillion              19%

Education                                                                .152 Trillion                 4%

Foreign Affairs                                                       .038 Trillion                 1%

All Other Government Spending        .              .304 Trillion                  8%

——————            ———–

2012 Total Federal Spending                             $3.800 Trillion             100%

2012 Total Tax Revenues                                       2.473 Trillion               65%


$1.327 Trillion               35%              (Federal Deficit for 2012)

$16.400  Trillion                                  (Total Federal Deficit)

Let’s add up just 1) Medicare/Medicaid, 2) Social Security, 3) Defense and 4) Interest on the National Debt. (22% + 21% + 19% + 6% = 68%)  These 4 items total 68% of the Federal Budget.

We could shut down the ENTIRE FEDERAL GOVERNMENT except for these 4 programs and WE STILL DON’T BALANCE THE BUDGET !!!

What are our Presidential and Congressional Candidates saying:

1. Just cut government waste.

2. Just lower taxes and the economy will grow its way out of this fiscal mess.

3. Just control government spending

4. Just tax the a) rich and b) big corporations more

5. Just cut Entitlements and things will be all right. Obviously, these individuals are using such slogans to get elected. What will it take to fix things?  This is the magic question. It will probably require all of the following:

a. Significant cuts in Entitlement programs and Defense

b. Tax increases most likely significant increases for all of us who pay taxes.

c. Significant changes/cuts in government employee pension and retiree health insurance benefits.

d. Spending cuts across the board in all other government areas

What about Welfare programs?  How much can we cut?  Another good question.  Cuts will need to be made here too.  However, do you want to live in a society where the disabled, sick, aged, poor, unemployed and other disadvantaged individuals live like they do in India, Haiti, South Africa?  Is there welfare fraud in these programs?  Yes.  Is it pervasive and widely abused?  I don’t think so. 

The medicine to fix this mess will not be pleasant. We all must suffer.  No exceptions.  The rich, middle class and poor.  Government employees including the police, firefighters, teachers and military.  Wall Street investors, bankers, doctors, lawyers.  Big corporations, small and medium sized businesses.  All of us. The trick will be how to do it in a fair and equitable way.  Good luck with that.

Will our elected officials have the political will to act before it is a crisis?  Unfortunately, there is no evidence of it.  There will need to be a crisis.   

So, we are basically SCREWED no matter who we elect.  There is an old saying “People get the government they deserve.”  Needless to say, we deserve the medicine we will be forced to swallow in the coming years for not paying attention to what was happening in Congress, the state legislatures, county boards and municipal council chambers.

And this is only the Federal budget.  God help us when all the other levels of government finish with us, i.e. State, County, City, Village, Township.  Each of these have their own financial troubles to deal with.  Guess how they will fix these?  Same song different verse.

  • Finally, from a reader and colleague in the hospice industry….What went wrong?  Those of us in hospice for the past twenty plus years were kind of like kindergarten teachers; we did it because we loved it and thought what we were doing was noble and proper.  We never intended to make a ton of money on caring for the terminally ill and in reality, we never did.  We raised money to make ends meet and we never thought of drumming up business by hanging out at nursing homes and telling the nursing home that we could make them money by taking their Medicaid/Medicare residents and putting them on hospice.  When we went to a nursing home and took care of someone, it was because the  person was truly dying and proof of point, they generally did in short-order.  I am truly depressed to see these mega-corps tarnish what I love and think of as the most important service on earth and all because shareholders just want more return.  What happened to “care” coming first and profit coming to those who put “care” first?

Until next time and as always, keep the feedback coming and keep the faith!

August 13, 2012 Posted by | Hospice, Policy and Politics - Federal | , , , , , , , , , , | 2 Comments

What’sTrending: A Tad Late

Travel last week took me off schedule a tad so this post, normally scheduled for last Friday, didn’t make it on-line until Monday.  Below is the list of what I am trending (watching) followed by last week’s Fall Outs (worth noting but not worth watching).

Hospice Fraud Redux: This issue is one that I have been watching on and off for the past year.  Last week, news broke via a 10Q filing from Chemed (Qs are a public company’s quarterly financial and operating required reports) that its subsidiary Vitas was once again, the subject of a fraud investigation via subpoenas served by the Office of Inspector General of DHHS.  At issue is the possibility (written tongue-in-cheek) of improper billings to the Medicare and Medicaid programs. As has consistently been the case with these types of investigations, the focus is on patient eligibility, certification, referral development, and compensation as it relates to patient enrollment.  Why this trend is worth following for a bit is simple: I don’t think this is the last of the investigations for Vitas and or other primarily for-profit hospices.  Watchers of the industry, and I am one, predicted that the Texas/Vitas case would have legs and lead to other investigations.  I don’t think we’ve seen the end of where the fraud investigations in the hospice industry will go.  States that I am watching now are Texas, Florida, Virginia and Illinois as each has increased claim reviews and targeted reviews ongoing and each has had issue with false-claims violations before and in some cases, ongoing.  I have written on this subject before, particularly the fraud aspects in-detail ( and With hospice, there are truly only a few issues that drive this kind of activity.

  • The hospice benefit under Medicare is old, dated and to a certain extent, ripe for exploitation.
  • The Medicaid economy and economics drives providers to seek ways to offload expensive patients.
  • The number of providers in the hospice industry is far greater than the organic demand for hospice.  This is a very key point.  There simply is not enough “organic” demand for hospice in the form of truly, terminal patients in comparison to the number of hospice providers.  The net result is the constant search for potential patients that “may” fit inside the Medicare benefit.  The key word is “may”.  What results is a stretch of eligibility and enrollment tactics to garner incremental patient days that are truly “questionable” when viewed against the benefit standard of “terminal (probably) in 6 months or less”.  As earnings for the public companies are driven primarily by enrollment numbers managed or butted by length of stay, it’s no wonder the industry continues to see issues of false claims/fraud arise as quite simply, the true patient volume is insufficient to produce and sustain long-term results.

Medicare Rate Season: I mentioned this issue last week and it continues to bear watching, albeit with a twist.  This past week, CMS released its update for Medicare SNF reimbursement effective October 1 – a positive update of 1.8%.  This is good news, sort of.  Coming off last year’s 11% reduction, any increase is positive news.  The sort of element is tied to other operative spending reductions and deficit reduction targets embedded within the ACA and other federal laws that foreshadow further spending cuts over the next ten years.  In untouched or unaltered via other legislation, the probability of further reimbursement erosion under Medicare is “highly likely”.  Couple this with CMS’ stated desire to totally re-work the SNF reimbursement program and I still believe that further revenue attrition from Medicare is going to occur, in earnest.  This however, does not mean that for many SNFs properly positioned and properly managed, that Medicare won’t be a good payer source.  It does mean that the providers that have “bulked” revenues and rate on therapy activity are in for a rude awakening, on a number of fronts.

Fraud at the Forefront: The Obama Administration has unquestionably become the prime actor when it comes to seeking out fraud under the Medicare and Medicaid programs.  Arguably, the results of their efforts in the light of the investments made leave room for debate on the “purposeful activity” premise.  Nonetheless, the Administration is placing an even higher premium on eradicating fraud and taking on provider billing practices.  What this means is that the providers need to step up their own games in terms of cleaning their operations and developing compliant practices.  Not a day goes by that I don’t hear about targeted claims reviews, probes and investigations going on in every industry segment.  I am paying particular attention to hospice (see above) and skilled nursing.  In spite of continued warnings, the SNF industry continues to exhibit overzealous billing of certain therapy RUGs and at even slightly higher levels than last year.  CMS is on this and they are systematically going after these claims as many are purely not justifiable.

The Elections are Coming: I am an admitted policy junky so maybe this trend is less fascinating for my readers than it is for me.  I can’t help but watch the positioning and the rhetoric and what trends as talking points and issues week to week.  Bottom-line for us healthcare people is that this election will have ramifications for the industry regardless of who wins the Oval Office.  The painful reality is that the present federal budget at all levels is an unsustainable mess and federal spending on entitlements is growing faster than all current revenue sources flowing into the federal government.  In short, spending on Medicare, Medicaid and Social Security is greater than all tax revenues.  This leaves every other element in the federal budget subject to debt funding.  Spending cuts on discretionary issues won’t debt the deficit and raising the upper income tax limit does nothing to fix the issue either.  Even combining the two, raising the upper tax limit and reducing discretionary spending does precious little to change the metrics.  The only game-changer is to tackle the entitlements and thus, healthcare spending moves front and center in the policy debates.  It will be interesting to see if any candidate at any level (or candidates with a snowball’s chance in hell of being elected) will tackle the entitlement issue with clarity and honesty.

My Fall Out issues for the past week are;

  • Medicaid for now.  I’m still watching but as of now, no specific news or events are triggering my attention.
  • The Medicare SNF rate increase – nice but the back story is far more interesting than the rate increase.
  • OIG report on Medicare overpayments to Home Health providers.  I love it when the Feds overstate the obvious with another investigative report.  Really?
  • The White House released its updated forecast of Medicare and Medicaid spending via its mid-session review of the Federal Budget ( the budget that really doesn’t exist).  Per this review, the White House is forecasting a lower level of Medicare and Medicaid spending over the next ten years than previously forecasted – $121 billion less in Medicare and $123 billion less in Medicaid (compared against totals of $7.1 trillion in Medicare and $4.4 trillion in Medicaid). Really?  Does anyone believe these numbers?  I surely don’t and what’s worse, I can do the math.  These “reductions” are like having one less Skittle in a five-pound bag of Skittles.  Enough said.

August 6, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , | 6 Comments

What’s Trending: Last Friday in July

Opening celebration at the Olympics is catching most of the buzz today and the Dog Days of Summer are definitely full-on.  Still too much heat and not enough rain for my pleasure but August is around the corner and hopefully, some cooler weather.  If nothing else, I can rely on the Olympics to alter my mood (my heat malaise).

Here’s what I’m trending and of course, my weekly Fall Out issues, in case anyone missed these events.

  • Medicaid: I’m still trending Medicaid and will be for a while.  The news this week was a bit anticlimactic in terms of the revised CBO score, etc.  More interesting was the Volcker report on the state budget crises nationwide (see my post from last Friday on this issue at ).  The Volcker report names the two ton elephant in the statehouse and accurately, conveys the true issues with Medicaid.  Regardless of the CBO score and the modest projected decrease in federal spending, Medicaid expansion for the states deepens the existing wound.  I’m likewise watching carefully, the MCOs and their race for managed Medicaid contracts as state to state, relinquishing programmatic control to one or more private organizations is the trend.  Unfortunately, even a privatization compromise as many states are attempting, doesn’t resolve the structural deficit and funding problems that are Medicaid today.  I still can’t figure out why neither party but especially Republicans now, aren’t jumping on the clear need to totally revamp Medicaid.
  • The Economy: Like last week, this trend bears continued watch.  Second quarter GDP numbers came out today and while not indicative of a depression, the results show stagnation; 1.5% growth.  At this level, there is no job creation on the horizon.  Consumer spending dipped dramatically leading to the meager growth numbers.  Bottom line: Consumers don’t like the picture, housing numbers are weak, job growth is non-existent and the net to healthcare providers is continued constraint on volume and increases in Medicaid enrollment.  This outlook is a state’s worst scenario as without revenue increases via taxes (income, sales, property primarily), rising plus increasing entitlement demand drags local and regional recovery prospects.  National recovery won’t really begin to take shape until local and regional recovery occurs.  The watch now is whether the Fed opts for additional stimulus in the form of another round of quantitative easing.  Clearly, maintenance of low-interest rates is insufficient to bolster consumer spending or commercial lending, not that there is a big demand for commercial credit at the moment.
  • Mergers and Acquisitions: As a bit of clarity on the ACA’s future arrives, the M&A activity is picking-up and the combinations are interesting.  Much of what I see in the hospital industry is the need to increase efficiency, tighten market presence, and to try to find synergies.  The deals are not really economic yet; primarily strategic.  As states continue to move toward privatization of their Medicaid programs, insurers that are players in the managed Medicaid arena are consolidating looking to build greater network dominance and lever infrastructure investments.  Within existing managed Medicaid programs, it will be interesting to see provider and political reactions to Wellpoint’s acquisition of Amerigroup.  On the post acute side, values have stabilized and thus, cap rates have recovered a bit.  Seniors housing is still the most attractive play, particularly rental projects and Assisted Livings.  CCRCs are yet to arrive to the party with any real volume but I suspect, the next year or two will see more CCRC activity.  My biggest watch on this trend is PBMs and pharmacies as ACO development continues to take shape and networks begin to get operating, consolidation to again, take on size and gain efficiency should occur among pharmacies and PBMs.  Activity here is bound to occur similar to what we recently saw regarding DaVita and HealthPartners; a strategic and synergistic merger to take advantage of the evolving ACO landscape.  Regardless of whether the ACA changes via repeal or other legislative action post November elections, the ACO model will remain viable in some form or fashion.
  • Medicare Rate Season: This is the time of the year where DHHS/CMS announces October 1 rate changes for providers (2013 FY rates).  I’m expecting only modest increases and so far, from information already available, that’s what is occurring.  The provider segment I am most interested in is skilled nursing.  Consensus is in the 1.5% to 2% range; a respite after last year’s rebasing.  Of more interest are the comments made in the actual notice; an opportunity to gain some go-forward information or future expectation.

Here are my Fall Outs for the week (issues worth noting but not worthy of continued watch);

  • Medicare Hospice Rates are going up in 2013 by .05% on average for urban hospices and .04% for rural hospices.  The rates are a function of an increase in the Labor Index minus a productivity factor and minus the continuation of the BNAF phase out (15% for 2013).  2013 begins the requirement for hospices to report quality data on pain and to expand their diagnoses reporting.  Hospices that fail to participate in and provide quality data will see a 2% reduction in their payment rates.
  • Medicare Inpatient and Free-Standing Rehab Rates: Free standing and acute based, inpatient rehab facilities will see a 2.1% increase in Medicare rates effective October 1.  In addition, new reporting requirements on two quality indicators will go into effect – UTIs related to catheter use and new or worsening pressure ulcer/sores.  Pressure data is required on Medicare beneficiaries only while catheter related UTI data is required on all patients, regardless of payer source.
  • Doc Payment Fix Bill in the House: Rep. Mike Burgess from Texas introduced legislation that would extend the current physician fee schedule “patch” in place through 2013, providing Congress with additional time to craft a permanent solution. Without some kind of extension or fix, rates for physicians and any other provider payments tied to the physician fee schedule and calculated via the SGR (Sustainable Growth Rate formula) will decrease by 30% effective January 1.  Hate to say it but this bill is going nowhere.

July 27, 2012 Posted by | Hospice, Policy and Politics - Federal | , , , , , , , , , | Leave a comment

What’s Trending: A New Feature

By popular request, I’ve created a new feature to this site to cover issues and topics “in brief” that I am watching or in some cases, directly tangential to by engagement.  Weekly, my inbox is awash in “what have you heard?”, “are you seeing this?”, “what’s going on with?”, etc., type questions.  I do try to answer them all to the extent possible and then one day, someone asked if I could compile my comments into a weekly or bi-weekly piece and route it or post it accordingly.  This is my first compilation of what I think, will occur on an every week to ten-day basis (if I can keep up).

  • Supreme Court Decision: Thursday is the day we learn the decision of the Court regarding the future existence of the PPACA; the focal discussion on the individual mandate.  My reasoned opinion, obtained in part from my myriad of qualified and unqualified sources is that the Court will find the mandate unconstitutional.  Personally, I believe that the Court will also effectively reason that the core of the PPACA then falls, applicable to the exchanges, Medicaid expansion, and the expanded benefit and coverage criteria mandates for commercial/private insurance policies.  I am less clear about how the language will be interpreted from a policy perspective but suffice to say, I am solidly in “the camp” of those who believe the PPACA will be shot full of holes on Thursday, left to crumble as it is structurally gutted.
  • Post PPACA Demise: Regardless of the ultimate outcome, I am advising providers to look at the core concepts embedded in the PPACA and to quickly understand, the health care landscape has fundamentally changed.  Remember, CMS has broad and powerful rule-making capabilities and what once may have been a part of the PPACA can quickly return in elemental form via administrative law.  For those who will joyfully celebrate the end of the PPACA, I offer a quick refresher regarding the “law of unintended consequences”.  An activist CMS/DHHS can quickly re-visit a number of core concepts and apply the same with perhaps, nuances and twists that are more onerous than applied in the PPACA.  Thus, I suggest everyone stay close to a script that focuses on quality based payments, bundled payments, new network and delivery systems (ACOs), re-hospitalizations, new outcome measures, coordinated care, and Medicare payment restructuring and re-basing (the latter necessitated by the poor fiscal outlook for Medicare, PPACA notwithstanding).
  • Hospital Observation Stays Rising: Starting October 1, hospitals will receive weighted payment reductions for re-hospitalizations occurring within 30 days post discharge for Medicare patients hospitalized concurrent with one of three DRGs – heart failure, pneumonia or MI/heart attack.  Payment reductions will occur for all Medicare payments for hospitals that rank retrospectively, in the bottom quartile of performance on re-admission rates compared to applicable peers.  In October 2015, additional at-risk DRGs are added and monitored for re-admissions.  The trend that we are seeing today is for hospitals to take a “cautious” approach with Medicare patients presenting via outpatient settings, nursing homes, and through the Emergency Department as applied to admissions.  While penalties are not yet in-force, hospitals are mindful of the re-admission implications and are using observation stays as a vehicle to expand care without triggering an inpatient admission and thus, a possible adverse event.  I am not yet seeing a diagnosis correlation to these events simply a Medicare implication.  The downstream implication is that a hospital discharge to an SNF may not include a three-day qualified “inpatient” stay for Medicare coverage.  I hear increasing complaints from SNFs about this issue and I advise the same tactics; get to the hospital in-person to qualify your discharges and do your homework.
  • Post Acute Care Transitions: In light of the topic above and the focus on avoidable re-admissions, post-acute providers need to get on-board and quickly.  Hospitals are loath to do business with weak post-acute providers that beget re-admissions in 30 days, regardless of the original hospital admission DRG; too much risk.  SNFs, home health providers and to a lesser extent, hospices need to focus on tightening their care transition approaches and increase their ability to insulate against unnecessary discharges to the hospital.  Increasing internal clinical competence, strengthening physician relations, improving pre-admission assessments, improving staffing particularly on off-shifts and weekends, developing transition algorithms for various disease states and routine discharge causes, and working with families via education are all key components in improving post-acute care transitions.
  • Hospice Still under Watch: I am hearing constantly from hospices that are being probed, struggling for referrals and having re-certs denied.  Frankly, this isn’t surprising as almost week by week, we learn of another settled Qui Tam case involving False Claims Act violations.  The most recent occurred with Hospice Care of Kansas, strikingly similar to others within the industry.  The Feds smell blood in the water here and as I have cautioned before, one public Qui Tam action begets others, particularly when large dollars are involved.  Whistleblower actions are a new cottage industry within health care and hospice claims are low-hanging fruit.  Here’s the take away and for those who haven’t heard me lecture on this subject or read other pieces that I have written on it, this isn’t “news”.  Hospice is a niche industry and under Medicare, very oddly regulated with ill-defined eligibility and coverage criteria.  The Medicare guidelines are frankly dated and the payment, inversely proportionate by setting and by length of stay.  The combination of dated regulations, improperly incentivized payments, and non-diagnosis specific coverage determinations can’t help but create an environment of fraud.  Mix Medicare with Medicaid payments that over-arch within nursing homes and certain home/community based settings and effectively, open flame is applied to a combustible liquid.  In reality, there are too few organically qualified, terminally ill Medicare patients that desire and elect hospice, compared to the number of Medicare hospice providers.  By “organically” I mean patients with classic end-stage diseases or conditions such as cancer, end-stage Parkinson’s, certain categories or stages of heart failure, COPD, etc.  In these cases, certainty without treatment and intervention is known.  Expanding the eligibility criteria (for providers) under Medicare is fairly easy as diagnostic codes are not required for coverage nor really, is evidence of decline in status though recently via probe activity on recertifications, I have seen situations where CMS has denied continuation of coverage for lack of evidence of terminality (evidenced by condition or status deterioration).  Bottom-line: Hospice will remain under scrutiny for quite some time and the net result, a stagnant environment for referrals and new patients will persist.  I expect the industry to shrink in total volume or marginally, remain flat over the next three years.

I hope everyone likes this new feature and for regular readers and followers, please feel free to keep your comments and questions flowing. I’ll get to them as best as I can.

June 26, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | 1 Comment

Post-Acute Issues Worth Watching

In my recent work and across recent discussions, phone conferences, etc., I’ve encountered a thematic trend; a circle of issues or as in reference to geese, perhaps a gaggle. Doing a bit of research and sifting through notes written over the past few weeks, here is what is trending.

Pharmacy: In October of last year, CMS issued a proposed rule with a provision inserted which, if published within a final rule, would prohibit consulting pharmacists in SNFs to be employed by or contracted with, the dispensing pharmacy.  The theory is that when consultations are performed by pharmacists employed by or affiliated with, the dispensing pharmacy, there exists a greater potential for SNF residents to have as part of their medication regime, higher levels of anti-psychotic drugs, psychoactive drugs, and an increased level of unnecessary or unwarranted drugs.  Of concern to most of us working in the post-acute/healthcare arena is that CMS can point to no specific data or research to support this theory, save a well-known fact (historically) that seniors in SNFs use far more anti-psychotic and psychoactive medications that seniors in non-instiutional settings.  Drawing a bright-line conclusion that consulting pharmacists related to dispensing pharmacies are the cause is boneheaded to say the least. 

Despite this flawed view on the part of CMS and the comments generated during the comment period, my sources inside the D.C. beltway are saying that CMS will publish a final rule soon including a provision requiring SNFs to use independent consultant pharmacists, effective January 1, 2013.  Assuming this does occur as I am hearing, SNFs today should begin to work to develop a plan to source possible options ASAP.  The inherent difficulty of course is;

  • Insufficient supplies of pharmacists, particularly those that have current clinical consulting experience.
  • In light of the point above, pharmacists with access to clinical consultation software applications.
  • Knowledge – Geriatrics and chronic disease is a specialized field.
  • Time and efficiency – getting to know the residents and their respective drug regimens will take a non-affiliated consultant longer.
  • Cost – finding a source will not come cheap.

Some options do exist for SNFs in the right market areas.  My best advice is to approach hospital systems, work with universities with pharmacy schools, band together with other SNFs, and start now to build a consultant’s package with your current consulting pharmacist, assuming he/she is working with your dispensing pharmacy.  It is likely the dispensing pharmacy will work with its SNF clients to a great degree, trying as best possible not to lose the current dispensing business as a result of being a barrier in a transition period.

Hospice and Fraud: Most people who are close to the hospice industry either foresaw or should have seen, the current investigative and crack-down activity from OIG and CMS. The industry in terms of providers and benefit utilization, grew substantially over the past decade, despite overall health care utilization remaining on a relatively slow-growth to no-growth plane. For people like me who watch the industry closely, it was illogical to assume that a growth of terminally ill individuals suddenly sprouted and maintained the growth rate recently evident.  The same logic concerns were expressed by Medpac and the OIG with the OIG specifically warning of forthcoming investigations where the bulk of a hospice’s patient encounters arose from nursing home contracts.  Just last July, the HHS OIG indicated that it found that hundreds of hospice agencies relied on nursing homes for over two-thirds of their case load. Other reports from Medpac and the OIG found that literally half if not more of these proto-typical nursing home patients under the hospice benefit, did not meet one or more of the qualifying criteria for coverage/certification.

While the large agencies, predominantly investor-owned will be on the radar, even smaller and regional agencies are coming under scrutiny. CMS reports, and I have encountered this first-hand, that claim denials are up, particularly at re-cert periods.  Diagnoses are being scrutinized carefully, with CMS looking at re-certs and probing for some evidence of deterioration or movement toward death.  CMS knows that certain diagnoses and patient locations correlate to longer stays and as such, the audit focus is squarely on this relationship.

For hospices, the direction is clear – be wary and cautious of certain patient types and the “nursing home/assisted living” patient flow.  Nursing homes and assisted living facilities are not necessarily gold-mines of potential referrals,  In fact, the true number of organically terminal patients that would/will fit the hospice benefit criteria is not much greater from an overall ratio perspective, than the number found in the general population.  While the business relationships between a hospice and a SNF or assisted living facility appear attractive, it is the attractiveness that also makes the same perilous today unless smartly coordinated and managed.

For the past couple of years or so, the hospice growth trend in terms of referrals has been slow to flat.  Nothing regarding the recent fraud cases in the industry suggests this trend to arrest.  If anything, I expect to see the trend marginally down for a period with the industry actually contracting in terms of the number of providers.  Some will simply call it quits while others will sell or merge.  Either way, expect fewer total providers and a stable to decreasing referral pattern shift.

Qui Tam, Me Too: The latest round of major fraud actions and False Claims Act identified violations arose out of Qui Tam actions or more commonly, Whistleblower actions.  While the Federal government is clearly targeting certain post-acute segments (see OIG 2012 workplan), equally as profound an impact on the industry is the proliferation of former employees and/or contractors willing to disclose less than scrupulous provider behavior.  While this element of the law always existed (enforcement and recovery via a private citizen for a portion of the recovery settlement), it has clearly grown to a new level in recent years. The reasons?  First, down economies bring forth certain behaviors on the part of businesses pressured to generate earnings and revenue growth.  If no organic growth exists within the business sector or market(s) a business occupies, it is incumbent upon the business to find new ways to mine potential market niches.  This is very apparent within the hospice sector and in the Medicare component of the SNF industry.  The pressure to build revenues in non-growth periods inherently leads to some corner-cutting or machinations that run afoul of the False Claims Act.  Shrinking or saving to a profit while a short-run strategy, is nearly impossible to maintain over a longer term horizon without shedding fixed costs as well; very difficult.

The problem inherent with manipulation of Medicare coding, billing, referral requirements, etc., is that what seems good or plausible at a 20,000 foot level must also seem good and plausible at the ten foot level; a level where multiple people must buy-in to the same structural arguments, beliefs and incentives.  As the folks existing at the ten foot level rarely see the same level of incentive nor have perhaps, the same level of “skin” in the game, any level of apprehension arising on their part or disgruntlement can be quickly structured into a Qui Tam action. Mix equal parts news coverage with employees disgruntled by certain practices with a growing element of the bar (lawyers) seeking Qui Tam actions with a government willing to pursue these actions and you have a fairly fertile tract of ground for more Qui Tam events.

The moral of this story is that organizations need to be very vigilant concerning their compliance activity, removing any incentives tied to new revenue growth without some counter-balance of audit and scrutiny.  Too many times I have heard providers tout abnormally good results in segments or sectors that are flat to under-performing.  This is a red flag simply from the standpoint of “why you and not everyone else” logic.  If for example, an SNF has an inordinately strong, high paying rehab case-mix and therapy productivity, my counsel is always around “red flag”.  Any facility’s profile should match close to the national case-mix distribution and when it doesn’t, either abnormally low or high, its time to delve deeper.  The same is true with hospice growth, nursing home days, length of stay and percentage of continuous care designations.  Remember the age-old economic axiom – “what gets rewarded or paid for, gets done”.  Incentives perversely aligned within the boundaries of False Claims Act risk areas are ripe for peril and thus, someone within the organization or tangentially connected to this process, to cry foul with today, the expectation of a decent future pay-day.

Revenue and Earnings Cautions: In light of some of my comments regarding Qui Tam above, certain post-acute sectors are seeing revenue reductions and thus, earnings shortfalls resulting from Medicare payment reductions and fraud/probe activity.  Hospice is a segment that I predict will continue to under-perform as growth is truly non-existent and where growth was attainable via SNF relationships, clearly constrained by federal oversight. Additionally, the SNF industry will suffer as well.  Kindred’s recent earnings announcement showed this quite clearly.  Medicare cuts impacting therapy RUGs primarily will impact SNF organizations that relied on “mining” certain RUG categories for revenue and margin.  Without a more streamlined and balanced revenue model, the Medicare reduction comes faster than the trailing operational improvements possible via rebalancing the business enterprise. Kindred announced as much as it intends to shrink its facility holdings via non-lease renewals and concentrate on building a more efficient revenue/expense equation. Remember, fixed costs are the most difficult to shed and variable costs, tough to align in tight labor markets and markets where patient populations flux daily.  In short, only so much can be gained via trimming variable expenses and typically, the amounts are less than adequate to offset revenue reductions and protect margin.

Quality or Quit: The final issue and one that has been lurking in the shadows and unfortunately, ignored by too many providers, is the issue building around “quality”.  The frank reality is that from all my sources in Washington and around the various policy arenas is that quality is what matters.  There is a prevailing and growing belief that payment must be tied to quality and that government must do everything within its power, regulatory and otherwise, to push providers to deliver better outcomes, more efficiently.  This is the genesis of the ACO movement.  I have heard directly from important policy and political figures, directed at provider organizations and industry segments, produce “Quality or Quit” the business.  Providers have longed believed that quality was the furthest thing linked directly to payment, even though lip service was given to the subject.  For post-acute providers and industry segments, the recent release of proposed outcome measures by the National Quality Forum (anyone wishing a copy, e-mail me and I will forward) is a good place to start grasping what is coming, and in a big hurry.  Providers across the post-acute spectrum that are not presently, directly and seriously engaged in measuring key care outcomes, need to get up to speed quickly.  Reimbursement will be tied to quality measures and more important, providers that are not jointly participating up-stream and down-stream in quality improvement across industry segments, will not see the level or quality of referrals necessary to stay in business.

March 6, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , | 3 Comments