Reg's Blog

Senior and Post-Acute Healthcare News and Topics

Medicare Fraud and Why; Part II

Last week I published a post regarding Medicare fraud that is occurring in the post-acute industry.  The post is available at .  At the end, I indicated that I would provide a follow-up post; a closer piece more succinct on why the fraud trend is heating up and what the drivers for this trend are.  In short, while the two posts (this one and the one from last week) can  stand-alone, readers with interest in this topic are advised to read both.

In the previous post, I indicated that Medicare in and of itself is an instigator of some of the recent fraud activity.  The very nature of the program, how it pays, what it pays for and how its claim adjudication processes and benefit structures are configured establishes an environment that is a veritable Petri dish for providers looking to “game the system”.  By design, Medicare itself is uniquely flawed as it creates an incentive environment for ramping-up procedures, utilization and acuity thus leaving wide interpretive room retrospectively about the necessity of the care provided to any one or any group of patients.  Similarly, as the predominant payment methodology under Medicare is prospective, not based on a series of medical necessity tests, any third-party utilization review administered by qualified individuals will invariably find payments made for procedures, care, diagnostics, medications,, that proved, knowing the final outcome of the care provided to a patient or group of patients, to be unnecessary or perhaps, greater in amount than what was truly required.  The assessment tools and tools of predetermination of need or necessity that drive prospective payments under Medicare, while lengthy, bureaucratic and ill-defined, rely extensively on human judgement and input that is subjective in many regards.  The playing field thus is truly wide-open and when combined with the implied incentive that more achieves higher payment, a clear or even abstract environment is present for fraud.

Behind the process of payment and the benefit administration elements of Medicare lies a whole series of laws and agency administrative codes that seek to define what is fraudulent behavior where Medicare is concerned.  Truly, this body of work is the purview of lawyers. In my years of travel throughout the healthcare industry, rare do I encounter folks at the operations levels, administrative levels, clinical levels or financial levels of healthcare organizations that completely grasp the depth and nuances of these laws.  In fact, because the topic and information is arcane and uniquely legal, I often encounter multiple consultants and even lawyers, that don’t understand it.  Frankly, I have spent time with consultants from large, well established practices whose content knowledge in this subject area is poor to non-existent and thus, outright wrong.

Taking the foregoing and placing it into an evolving conclusion, the puzzle starts to become clearer as to why “fraud” is spreading as rapidly as it is.  First, Medicare itself begets a certain level of activity that is specious.  Second, the laws that define fraud are convoluted and constantly evolving.  Third, the people at the organization level rarely understand the laws and to be honest, their jobs are not charged with “knowing” the depths of what Medicare and its associated agencies, consider as fraud.  Finally, all too many third parties that organizations rely on routinely for expertise are no more versed in compliance and the fraud laws than the organizations themselves.

In its most simplified form (lawyers please hold the laughs as my role is to employ wherever possible the KISS principle), fraud under Medicare can be boiled down as follows.

  • Anti-Kickback: Forbids any individual or organization that is involved in the provision of care reimbursed or covered under Medicare or Medicaid  from receiving a financial incentive or inducement associated with a referral, the provision of service, utilization or marketing of a service.  The Anti-Kickback provision has been broadly employed to cover contractors, lease arrangements, referral arrangements, purchasing arrangements, etc.  A growing and today, somewhat common use of the Anti-Kickback laws are the relationships between SNFs and Hospices, vendor relationships with SNFs, pharmaceutical and equipment suppliers, provider organizations, and lease arrangements between Medicare providers.  Most interesting to note is the after-practice or after-violation OIG activity where Anti-Kickback language arises following a Whistleblower action of some form.  In short, I am seeing more  activity here not as a de novo action started by CMS but following after, a Qui Tam suit.  Because of the breadth of activity that falls under Anti-Kickback, it isn’t surprising that this area is the most misunderstood by providers.  For example, I routinely see situations where SNFs  enter into or seek, agreements with diagnostic providers (radiology, laboratory, etc.) for fee levels below Medicare fee-screens or allowable levels.  Equally not surprising, I’ve watched this activity escalate concurrent with reimbursement cuts under Part A.
  • False Claims Act: Defines as a violation, any activity where a person or organization, intentionally and/or knowingly, causes payment to be made or seeks to cause payment to me made under Medicare or Medicaid for care that is improperly provided, provided illegally, unneccessary, etc.  Common applications or violations include upcoding, services not rendered, bundling or unbundling, services rendered illegally or unprofessional (not within a prescribed professional practice standard), phantom patients, kickbacks or inducements (see Anti-Kickback), and improper certifications or false certifications.  In most recent periods, like application under Anti-Kickback laws, the False Claims Act violations of significant magnitude seem to arise from Qui Tam actions.  Again, this areas of fraud is broadening rapidly as the methodology used by providers to create additional patient volume can and has run afoul of the False Claims Act (reference AseraCare’s most recent Qui Tam suit).  This area is a literal mine field for many post-acute providers and rapidly becoming an extremely hot interest area within the Medicare Hospice arena and the SNF arena.  What I see that is most disturbing for providers is their near complete failure to understand that a contract arrangement for services provided under Part A imputes False Claim Act liability to both parties.  Case in point: SNFs and therapy contract agreements.  Even though the therapy company may be completely at fault for upcoding therapy RUGs and thereby creating a scenario for violation under the False Claims Act, the SNF cannot escape the liability and culpability for the same violation under the Act as it is the Part A provider and the entity that generated the fraudulent claim to Medicare.  I am seeing the same application of False Claim Act provisions in the relationships between SNFs and Hospices where both parties were overtly engaged in certifying a resident as terminal when no such terminal condition truly existed.  In these situations, there is often dual application as the reimbursement crosses Medicare and Medicaid.
  • Stark Laws (collective): Created and then adapted via a series of additional laws, Stark fundamentally covers physician self-referral for Medicare and Medicaid patients.  At the core is a theme of separating physician interests where, given a physician’s ability to direct patient flow, ownership or financial benefit arising out of a referral is a prohibited activity.  Stark governs ownership, investment and beneficial compensation arrangements between physicians and other Medicare and Medicaid providers.  As is true with all Medicare/Medicaid fraud related laws, Stark is complicated.  The law is loaded with nuances that arose across Stark’s three phases (Stark I, II and III) that cover an inordinately wide range of activities that are part and parcel to physician practices and their relationships under Medicare and Medicaid.  Stark also has a series of “safe harbors”; practices that on their face may be violations but when conducted in certain ways and manners, the practice is not a violation.  The establishment of these safe harbors principally arose to deal with issues where certain practices crossed between Stark and the Anti-Kickback laws.  Examples of existing safe harbors are physician investments in joint-ventures in underserved areas, practitioner recruitment in underserved areas, physician investments in their own group practices (provided the practice group meets Stark definitions), and specialty referral relationships where the referral from a primary care physician to a specialist includes a fundamental understanding that the specialists will refer the patient back to the original primary care physician for continued care (money or other inducements cannot be a part of this referral process).  Within the post-acute industry, the most common Stark violations I see are the relationships between contracted physicians serving as Medical Directors in Hospices, Home Health Agencies and Nursing Homes where the compensation relationships are not properly structured to avoid compensation ties to referrals or to avoid improper compensation limits (inducements) above and beyond market and Medicare norms.

A quick review of the above laws and their simplified descriptions suggests that conducting or continuing certain practices is a proverbial “dance with the devil”.  The question posed thus, is why does fraud rise to the level that it does and seemingly, on a broad basis within organizations that have the resources to understand the laws and their implications?  The answer is: Market and Economics.  Consider the following;

  • Literally today in the U.S., there are more providers and capacity than true organic demand, when demand is correlated to “paying demand”.  Arguably, demand is probably sufficient enough to fill all capacity but when placed into the context of demand that pays in amounts equal or greater than the fixed and variable cost of providing the service, the “desired demand” is less than the current provider capacity.  If one were to re-frame demand to include payment equal to or greater than the fixed and variable costs of service plus a margin, the remaining demand is shaved lower yet again.  It is this level of demand that produces considerable competition among providers, often to levels where provider survival is at stake unless new sources of paying patients can be developed.  When cases such as the recent Qui Tams involving Vitas and Asercare arise,  one can quickly understand the inherent pressure within these organizations of developing new sources of patients, even if doing so runs afoul of Medicare anti-fraud laws.  In essence, the risk of organizational failure, poor performance, reduction in corporate value, etc. is greater than the risk of being inviolate of one or Medicare anti-fraud laws.  Taken marginally deeper, the truth is that there are simply not enough core (by definition under the Medicare hospice benefit) hospice patients at any one point in time, with adequate payment, to meet the overall capacity in the industry.  The same holds true for home health and is becoming more apparent in the SNF sector.
  • Market areas and their demographics and economic conditions change faster than healthcare providers can react and thus, what was at one point a good market may no longer be (one need only look at Michigan and in particular the Detroit area and corridor areas).  Operationally, even for remote office agencies such as found in home health and hospice, healthcare service provision involves a certain level of fixed investment and for certain, infrastructure investment.  Providers that have witnessed market fortunes change and thus, paying volumes shift, are stressed to replace dying or dwindling volumes with other volumes.  All too often, I watch once unthought of marketing practices, taboo relationships, referral relationships, and specious coding practices develop almost in concert with market changes.  The alternative?  Shutter offices, lay-off people, write down investments or abandon buildings.  For providers that have gone this route, the pain can be almost unbearable as trying to exit a now dead or severely decayed market is far from fluid; potential users or buyers of infrastructure don’t tend to relish the opportunity to enter a decaying or impaired environment.
  • While in former periods of economic decline, healthcare remained mostly immune from too much spill-over impact, the latest decline and continued stagnation violated past experience.  The reason is less one-side economically and more about a wider incorporation of elements that are causes and effects of the current economic circumstances.  Simply stated: This current period of recession and stagnation contains more elements of public policy causes than market forces.  This is particularly true for healthcare.  Though past economic periods evidenced rise and fall, recovering for market purposes in almost predictable fashion post fall, such is not the current case,  fundamentally due to the public policy issues that are dogging a normative recovery.  What this recession showed clearer than any other is that our economy is structurally unsound and our core time-held ideologies regarding the role of entitlements in a first-world leading society awash in smoke and mirrors; promises that are unsustainable and moreover, fiscally impossible to fund.  Thus, for providers, two forces are at work today (and for the immediate future) to constrain any real growth in payments and volume.  First, without a more robust growth in employment (non-governmental) and overall economic activity, those without health insurance will remain greater in number than historic (a payer source reduction) and programs reliant on tax revenues for funding,  facing mounting deficits (Medicaid and Medicare).  In economic periods when unemployment remains high, pressure mounts on governments to take-on a greater responsibility of social welfare, during a period where revenues via taxation sources are declining or on-balance, stable but lower than normal levels.  As the burden falls on entitlements, deficits increase to shift resources toward these programs.  Different in this period is that the balance sheet room to simply create more “credit” or “dollars” ( deficits) to shift toward entitlements is functionally non-existent.  The recipe today that on the economic front drives an element of fraudulent behavior is this.  One part fewer paying patients as benefit levels for health coverage have evaporated or waned.  Another part diminished resources from patients to pay for services, even where some level of benefit may still be intact.  Two parts an outlook of Medicare cuts and reductions.  One part current cuts to Medicaid payments, a program that already under-compensates providers for their costs of care.  And finally, three parts Washington policy makers awash in dysfunction, lacking fiscal clarity at each turn and an inability to generate traction on any programmatic plans of common sense that would create some level of stability and reassurance (the three parts are the House, the Senate, and White House).  To weather the malaise and compensate for what is and likely what will be, providers turn to paths creative.  The paths I too often see are by destination, a road to fraud.  Whether the activity is upcoding for patients that do not fit a higher level of reimbursement to engaging in contract negotiations at rates below Medicare allowable amounts to help offset reimbursement reductions, to billing at certain levels and providing care below the level billed to create a margin, each activity (and I could list many others) is at least in major part, a direct reflection on the current economy that is overlaid on healthcare.

January 14, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , | Leave a comment

Medicare, Fraud and Why: Perspectives on the Post-Acute Industry

What never ceases to amaze me is the amount of post-news discussion that occurs when certain issues rise to the front-page (or near the front page).  Seemingly, industry side-liners awaken and look in disbelief that one major provider organization or another is again, embroiled in some OIG investigation, lawsuit or official inquiry concerning their Medicare billing and/or care provided to Medicare patients.  The word “fraud” is tossed out quickly; the shock value of vulgarity at a cocktail party in polite company is expected.  Statistics from qualified and unqualified sources burst forth claiming, some correct, that approximately 20 to 30% of care paid for by Medicare is inappropriate, unwarranted, unnecessary or down-right fraudulent.  Truth be told, the unwarranted, inappropriate, and unnecessary talk is like Monday morning quarterbacking; an easy sport to engage in when all the facts are visible and the outcomes known.  The real question that is rarely, if ever addressed, is “why” do these issues consistently arise and most often, among the same provider organizations.

The simplest answer as to “why” the issues of fraud and inappropriate care and billing arise (routinely) is Medicare itself.  Any payment system that rewards via higher payment, greater or increasing levels of acuity and utilization is ripe for provider organizations to chase the greater reward, even if doing so stretches the limit on necessary or warranted care.  Think pro sports.  Higher dollars go to players that hit more home runs than singles or for average.  In fact, less than a few years ago, the prize for the “long ball” was so good that players opted to cheat with chemistry as their true ability alone would not produce the highest return or largest pay days.  In economic terms the old axiom of “what gets rewarded gets done” applies.  Medicare has a long history of over-valuing certain types of patients, services, etc. while under-valuing others and thus, it is by its own rate and payment methodology, inducing a certain amount of “fraud”.  When the rearview mirror test is applied or the hindsight test (that which is 20/20), its fairly easy to look at groupings of payments, diagnostic codes and outcomes and find structural flaws suggesting inappropriate or unnecessary care was provided.  The remaining question then revolves around how to pre-examine each event or group of events to a level to assure that no inappropriate care or unnecessary care is rendered.  Truth be told, I’m not sure that this question is completely solvable.

In some cases or circumstances notable of late, the word fraud is attached or overtly implied, to events that likely aren’t fraudulent; more indicative of gaming the system.  For example, the Senate investigation of Amedysis, Gentiva, Almost Family, etc. was principally tied to an investigation completed by the Wall Street Journal involving therapy visits.  At the core, the implication was that these companies “maxed” the number of visits to trigger the highest level of payment.  Important to note is that the practice of “clustering” visits around the higher paying thresholds began when Congress created the higher paying threshold out of concern that “therapy” was being limited to home care patients.  Of additional interest is the role MedPac played in this event, reporting average profit margins for these organizations approaching the upper teens to twenty percent range. 

In the example above, the issue front and center is Medicare profit vs. appropriate level of profit (whatever level this is).  With hindsight being 20/20, it is easy to see that perhaps, some therapy was over-provided or in some cases, some patients were selected intentionally because of their therapy or rehab potential.  Did the agencies referenced intentionally seek to align their referral development practices and marketing approaches to attract certain patient types?  Of course and doesn’t every business do the same?  Personally, I have run organizations that did this and provided guidance to others on how to do this.  The reality is that some patients are better paying than others and regardless of whether an organization is non-profit or for-profit, the goal of any business is to attract paying customers and preferably, the customers that pay the best.  When the incentive is laid forth by Medicare that certain types of care and services come with higher rates of reimbursement, it is only logical that providers will seek to develop business models and systems that garner the highest rate of reimbursement.   If unnecessary care was the sole issue of whether these agencies did wrong, I won’t attempt to defend them but alternatively offer the whole health care industry as an example of unnecessary care provided across the spectrum.  By our nature and culture, we have come to believe that more is better.  An analysis of “unnecessary” in any area from drugs to surgeries to diagnostic tests to hospital stays and physician visits, many of which are/were paid for by Medicare, would clearly show this to a be a systemic problem and as categorized by CMS/OIG and the Senate, fraud and violations of the FCA (False Claims Act).

There isn’t a segment of the post-acute industry that I follow that remains honestly non-participative with regard to Medicare billing impropriety.  There also isn’t a segment that isn’t constantly lobbying Congress to continue to shovel more money into Medicare and generally, skewed toward certain categories, diagnoses or patient-types where allegations of fraud routinely arise.  Recently, CMS announced a rebasing of RUGs rates for SNFs, primarily targeted at certain therapy categories.  A huge cry of doom erupted from the industry and the industry tag alongs, principally therapy companies.  I read for days, prognostications of SNF margins turning negative, stock prices falling, layoffs, etc.  What was the real issue?  Medicare is being used by the industry to routinely subsidize revenue shortfalls that occur via Medicaid. In reality, as Medicare is a bit payer in the SNF world (less than 20% of all days of care), the admission that Medicare is subsidizing other shortfalls is the same as stating that Medicare is overpaying SNFs.   For CMS, the issue was about another “miss” in the ongoing game of trying to tie reimbursement to care needs to patient populations.  The industry was, as has always been the case, one step ahead in moving its practices to where the money is.  No different than the home health industry events, the SNF industry targeted certain types of patients and unquestionably, a  portion of the therapy provided may fit the hind-sight definition of “unnecessary” either by level coded or visits actually provided.  Stretching the diagnosis, seeking certain referrals, building relationships that are economically advantageous to various parties, etc., is as common in the SNF industry as it is in hospice, home health, and hospitals.

The latest hospice industry news event concerning Vitas and inappropriate referrals of non-terminal patients is indicative of a twist on an old theme, nothing more.  While this instance is truly creative by definition, involving an insurer and a provider, both potentially culpable in a scheme to shift costs and maximize reimbursement, it still only rises to the level of “old news”.  For years, the hospice industry has been rife with a similar dance played between hospices and SNFs.  Caught or most recently on display doing this dance is Aseracare.  In this dance, hospices circulate among SNFs with high Medicaid census and patient profiles marked by long-term dementia and debility; custodial care by definition.  The hospice, in need of additional patients, tells the SNF that it can qualify many of these types of patients for the Medicare  hospice benefit and in exchange, the SNF will continue to keep the Medicaid daily rate but  the hospice will assume drug costs, supply costs, even DME costs plus augment the staffing.  As a kicker, the transition of the patient to the care of the hospice provides some regulatory relief to the SNF as now the overall care of this patient shifts to the hospice and documentation, assessments, and other paperwork otherwise required by the SNF no longer apply.  As expected, a win-win of sorts appears.  The hospice gets daily rate from Medicare, the SNF the daily rate from Medicaid, the hospice census improves, the SNF census remains the same, etc.  The real winner here however is the hospice as an SNF patient is fairly inexpensive to care for as the SNF provides much of the care infrastructure.  Visits to SNF patients are typically fewer than a comparable home-bound/community patient and by the nature of many of the patients qualified in this scenario, the length of stay on hospice is considerably longer – a nice stable, revenue stream.  Using the 20/20 hindsight view however, shows that a preponderance of these SNF patients don’t fit much of the Medicare hospice criteria and in the acid test category of likely terminal in six months or less, a plausible argument can’t be made.

In the quest for higher reimbursement in an environment facing Medicare spending minimization, control and cuts. behaviors and tactics become irrational and by their very nature, borderline or outright fraudulent.  The most rampant that I see is upcoding or creating phantom diagnoses and need where none truly exists.  The hospice illustration above is one such example.  Others that are common include “stretch-rugging” by therapy companies and SNFs, discharging dually-eligible Medicare SNF patients to hospitals when the medical needs (and supposed costs) increase, and back-dating orders.  In some cases, the activity is subtle such as SNFs that are willing to take below fee-schedule discounts for laboratory and radiology services for Medicare residents, even though doing so could lead to a Stark violation for the SNF.  The whole chase is about trying to maximize the net revenue under Medicare, either by increasing the volume or minimizing the costs associated with caring for these patients.

Still, the question begs as to “why” this level of fraudulent or inappropriate activity persists and, in-spite of well published examples of providers getting caught.  As I wrote earlier, a portion is due to the fundamental flaws inherent with Medicare, how it pays and the program benefit structure.  Chalking it all up however, to Medicare while easy, is like solving half of a crossword puzzle and calling it done.  In my follow-up post, I’ll provide a bit more clarity as to what I see, are the reasons “why”.

January 5, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , | Leave a comment

A Rare Post

As much as I have focused on keeping this site free from any of my personal agenda, I have encountered a circumstance that bears a one-time exception to my rule.  Please bear with me as this will be brief.

I have a colleague and true friend who was recently downsized from a deteriorating health system due to their financial and operational mismanagement.  This gentleman was in charge of Marketing and P.R. for this organization.  In spite of his best efforts and gifts, he was hamstrung by the financial condition and continued deterioration of the organization, literally unable to do his job due to the reputation and care problems, staff turnover, poor community reputation and consistent resource shortage.  He became a victim of circumstances beyond his control.

As I said earlier, I rarely attest for anyone and never in writing of this sort.  This is a first.  The reason?  This gentleman is gifted, a true professional and a consummate, stand-up guy.  He became a victim of circumstances because he was too principled to walk when he should have, even in spite of my counsel.  He finishes what he starts, even if not given the tools or support to do so.

This all said, here’s the inside information.  His name is Steve (I’ll withhold further unless requested).  He has thirty years of health care marketing and P.R. executive experience within hospital systems (one being the largest in the state) and in the post-acute environment (seniors housing, assisted living, SNFs, hospice, etc.).  He comes from a journalism background originally; television principally.  He knows media, public and community relations and can market and sell health care.  He is a gifted writer and has worked all angles of health care P.R. and Marketing from spokesperson to damage control to mergers and acquisitions and new product launches.  He’s even overseen philanthropy and fund development.  Aside from me, his references are impeccable and he’s well-known in the health care community in his market areas.  I have recruited him in past positions and would without reservation, hire him again.

To the point, he’s networking and available, including possible relocation.  I know of few other health care marketing people with his breadth of experience and track record of success.  To my readers, all of whom I appreciate, and my professional colleagues whom I equally appreciate, your leads or insights on Steve’s behalf would be deeply appreciated.  If you have any ideas or interests you would like to share and/or learn more about Steve (resume, etc.) or talk directly with him, drop me an e-mail and I will make it happen.  My e-mail is

Thanks for indulging my deviation in content and again to all, thanks for reading!

November 2, 2011 Posted by | Assisted Living, Home Health, Hospice, Senior Housing, Skilled Nursing | , , , , , , , , | 2 Comments

Hospice Census: Where’s It At?

A common question I am fielding has to do with the current “no growth” pattern of hospice census; in some cases, decline is more operative of the pattern.  Briefly, there are a number of factors at play, some recurring themes and some driven by more aggressive CMS intervention.

  • The biggest culprit in the current no-growth situation is the economy.  I’ve written about this issue before but it clearly bears repeating.  In a down economy, paying patients are more scarce than in a healthy(ier) economy.  Assuming as has been the case, provider growth or supply hasn’t declined substantially (if at all) during the recession to current level of stagnation; the same number of providers are chasing a lesser number of “paying” patients.  The reality is such that each provider seeks patients that can pay and ranks or grades patient value by payer source; some patients are worth more than others.  As hospice is primarily a “down stream” referral, generally coming from an acute environment, the base of referrals starts with the supply of paying patients within the hospital.  For most if not all hospitals, patients with good private insurance are the most prized.  Medicare comes next and Medicaid next and everything else well below.  For hospice, the bulk of referrals are Medicare followed by Medicaid and private insurance to a far lesser degree.  When the supply of patients with private insurance declines due to economic malaise for a prolonged period (as current with high unemployment) and the level of elective procedures dies rapidly, all other paying patients become more prized by the hospital; their value increases.  As the value of these other patients rises and isn’t replaced quickly with private insureds, the realization of keeping Medicare and Medicaid patients within the system and the hospital as an economic necessity (paying the bills) trumps the value of referring down stream.  In short, the demand from a supply of private insureds for beds and services isn’t great enough today to push these other patients out of the acute system.  Economically speaking, if I am a hospital, I will maximize whatever revenue source is available to me such that doing so is better than nothing as no immediate alternative or replacement is available.
  • While overall census hasn’t grown much over the last few years (if at all), CMS’ concern regarding the composition of hospice census has.  The primary focal point is around nursing home patients on hospice and their proclivity as a sub-group to account for longer lengths of stay.  Not surprising, as the sources for non-nursing home patients have remained stagnant or declined, hospice activity in nursing homes has steadily increased.  What CMS is concerned about today is the growth of the longest stays, principally where these stays occur and what diagnoses correlate to these stays.  A notable aside and one that cannot be ignored is the type of hospice ownership that seems to drive the majority of long-length stays.  The facts below combined with an OIG workplan emphasis that is focused on reviewing the business relationships between hospices and skilled nursing facilities correlates directly to a softer environment for census gains derived via nursing homes.  If the term Hawthorne Effect (behavior modification that occurs as a result of being watched or monitored) comes to mind, I’ve made my point.
    • The longest stays occur on average, in nursing homes and assisted living environments.
    • The average length of stay in-service for a for-profit hospice is 30 days longer or 33% longer compared to a non-profit hospice.
    • The bulk of industry growth in terms of organizations providing hospice has been for-profit, free-standing hospices.  The rest of the industry growth has remained essentially flat.
    • For-profit margins of free-standing hospices average 10 to 11% compared to non-profit margins of 3%.
    • A recent OIG report on hospice care provided in nursing homes found that 82% of the cases reviewed did not meet Medicare coverage requirements.
  • In the grand universe of all health care options, hospice care remains a decided niche’.  For non-health care people, its tough to wrap your head around a care approach that by its nature, offers no “curative” option.  For all too many individual patients and their families, this option is too often viewed as “giving up”.
  • Marketing has caused some erosion but marketing on behalf of non-hospice providers.  Cancer remains the primary cause of a hospice referral yet for every hospice advertisement I encounter, I encounter a literal ten to one (if not more) advertisements for hospital-based cancer treatment programs or distinct hospitals (think Cancer Treatment Centers of America).  While I know the overall survival numbers, costs, logistics, etc. as well as any one, the general patient and their family does not.  The treatment approaches are phenomenally positive and reassuring regarding themes of “hope”, “cure”, etc., even for the most desperate of diagnoses.  The hospice message is frankly trumped quickly as to the unitiated, it is still about death.  The result: Referrals that should have come sooner perhaps are not coming at all or coming closer to the final days.

Taken the above into account and CMS data regarding a projected growth in outlays for FY 2012 of 2.8% (Medicare), an amount that is almost entirely rate driven, expect continued stagnation on the census side.  Until the economy improves and more certainty is forward on the future of health care reform, growth in terms of new volume is not soon to arrive.

November 1, 2011 Posted by | Hospice | , , , , , , , , | 2 Comments

Current Policy Trends to Watch

In response to a recent series of questions from multiple segments of the health care and post-acute industry plus my own experiences within the landscape of providers and policy makers, I’ve summarized a current list of policy trends “pay attention to”.

Medicare Cuts and the Super Committee: Nothing seems to loom larger or cast a bigger shadow than the prospect of outlay reductions from Medicare translating into rate cuts for providers.  Here is the core everyone should focus on.  First, the recurring “Doc Fix” issue that Congress has repeatedly kicked down the road time and time again.  Let the current patch dissolve and voila, a big chunk of spending disappears (a 30% rate cut on January 1) – albeit with enormous likely consequences in terms of patient access, service reductions, etc.  Fix the problem permanently or more likely substantially, and additional non-budgeted spending occurs – a problem.  Presently “on the table” so to speak is a recommendation from MedPac to fix the problem via repeal of the Sustainable Growth Rate formula (the trigger for the current “cut” scenario) and replace the formula with a schedule of Physician Fee Schedule updates over a ten-year period.  The updates would target primary care physicians at the expense of specialists who would experience a 5.9% cut across a three-year period, followed by a fee schedule freeze.  Altogether, this is a fix but one that comes with new spending if no additional changes are made.  Likewise, the probability of this being a workable compromise within the medical community is minimal.  There remains a side problem to this whole mess and it relates to the number of other Med B services tied to the SGR such as outpatient therapies.

Back to the Super Committee and the prospect of triggered automatic cuts to Medicare.  The Committee is charged via last summer’s debt ceiling deal, to arrive at a  deficit reduction of $1.5 trillion to be implemented over 10 years, sourced either through spending cuts, new revenues or a combination of the two.  Based on what we know today and have consistently experienced over the past year or better, Congress lacks the political will and capability to achieve a consensus on just about any subject.  Given that we are also hip-deep in a political cycle with elections nearly one-year away, compromise on a plan is less and less likely.  If such a plan cannot pass or isn’t available by the deadline, current law requires an automatic cut of $1.2 trillion to occur, balanced across domestic and military spending.  Within the triggered cuts in domestic spending is a 2% cut to Medicare provider reimbursement.  This cut would be automatically on-top of, any other current reductions or cuts to providers that occurred as a result of CMS normal-cycle rule making.  For example, the 2% would be added to the 11% outlay reduction for SNFs.  Interesting to note, Medicaid is unaffected by the automatic reduction trigger.  Boiling this all down, here is what is likely “on the table” and could conceivably play out.

  • Medicaid is likely at greater risk for some kind of spending reduction package as Medicare and Social Security have the greatest political protection.  My best guess, not that this will actually occur or pass, is direct discussions with regard to block grants as an expenditure reduction, broader waivers to States to eliminate current pressure for additional federal support, slow-down of health care reform Medicaid expansion to avoid the additional up-front federal support/funding required by current law.
  • Some levels of additional programmatic delays or even, defunding of the Health Care Reform act.  Congress loves to think of “not funding” a future expenditure as a “cut”.
  • A Medicare realignment approach will be strongly considered.  Under realignment, the Commission could conceivably adopt an approach similar to pieces advocated by Paul Ryan namely, higher retirement/eligibility age, premium support for privatization of health coverage (vouchers) or even some level of excess benefit taxation on wealthier retirees (in effect, an imputation of a premium cost for certain income levels).  This approach is bolder than other less invasive options.

Medicaid: Notwithstanding my comments on Medicaid in the section above on Medicare and the Super Committee, states continue to wrestle with Medicaid deficits and the real prospects of flat or possibly shrinking, federal funding support.  For most states, Medicaid represents the second largest expenditure item within their budgets, just behind education spending.  Federal support levels average in the 50% to 60% range.  Additionally, the majority of states continue to operate on a fee-for-service platform, bearing all of the direct program and care service cost plus the administrative burden.  In a flat to down economic cycle, demand for Medicaid services rises for states as eligibility rolls swell with rising levels of unemployment.  At the same time, down to flat economic periods reduce state income collected via taxation; the principal source of initial, core funding for Medicaid (the FMAP provisions require states to allocate first-dollar, the source of which is predominantly taxes).  The three trends to watch with Medicaid, all of which I am seeing occur regularly, are;

  • A push toward privatization and managed care.  States are looking at ways to better coordinate services, create some competitive bidding models, and reduce administrative burdens.  Managed Medicaid programs have proven succesful in achieving these goals (some more than others).
  • Increasing numbers of programmatic waiver requests to the Federal government.  A major issue with the enhanced FMAP funding that came via the Stimulus Bill is that the funds came with strings attached, primarily a requirement that the enhanced funding be used for eligibility expansion, program expansion, and expanded benefits.  In July of this year, the enhanced funding disappeared leaving many states with an equal or greater structural Medicaid deficit and still lacking a sufficient economic recovery to garner the necessary “state grown” revenue to sustain not just former program levels but program and benefit expansion driven by the enhanced FMAP.  States are increasingly looking to the Federal government today for relief or “waivers” that undo what was put in place to garner the enhanced FMAP.
  • Increased provider taxes and decreased payment levels are a given for the vast majority of states.  I haven’t yet encountered a state Medicaid plan that wasn’t considering or already implementing, some form of provider tax increases and/or reduced payments to providers.  Of most reductions, the target appears squarely focused on the HCBS (Home and Community-Based Services) segment, inclusive of Medicaid waiver programs for Assisted Living and Congregate Housing (Medicaid payments made for supportive, assisted care to a population at-risk of institutionalization).

Miscellaneous/Other: This is a catch-all of five separates trends or issues that in some ways, are inter-related to the Medicare and Medicaid sections and in some ways, separate.  To be sure, I could have expanded this section by a magnitude of ten and still not touched on every policy issue presently at play.  I opted for the five I hear discussed routinely or I encounter frequently in my work.

  • Accountable Care Organizations (ACOs): The first release of draft rules from CMS in March of this year produced a non-starter response from providers.  The initial draft implied a series of cumbersome and poorly defined steps for creation, sustainment, operating and quality measures (65 quality measures required for bonus payments) that chilled providers.  Earlier this year when the draft was released, I wrote an analysis piece on the draft and the implications for post-acute providers ( ).  Clearly, my analysis paralleled the reactions that CMS received regarding the proposed rules.  Just this week, CMS released a revised ACO set of rules and to a fairly large degree, softened and clarified the objectionable elements contained in the March draft.  Summarized, here are the major changes.  Time will tell whether these changes spur additional interest in ACO development.
    • Reduction in quality measures from 65 to 33.
    • Providers are not required to share in the down-side risk and will be able to access earlier, elements of revenue sharing.  The initial version required all original savings returned to Medicare prior to any revenue sharing.
    • Community Health Centers and Rural Clinics will be permitted within the ACO model – originally excluded.
    • Providers will know up-front which patients are likely to be included within the ACO – originally, not known until after the ACO was formed – a removal or limitation on unknown adverse selection/population risk.
    • Inclusion of an Advanced Payment Provision for smaller ACOs, creating initial streams of payment or capital that allows infrastructure investments needed to formulate an ACO to effectively be funded by CMS.  this provision only applies to non-institutional ACOs (physician practices) of $50 million or less or rural based ACOs with Critical Access Hospitals or low Medicare volume rural hospitals.
    • Removal of the mandatory anti-trust review procedure for new ACOs by the Department of Justice and the Federal Trade Commission.  This was a significant gray-area issue in the March draft.
  • CMS Movement to Split Provider Pharmacies from Consulting Pharmacy Duties: In an effort to combat what it believes is a conflict of interest between quality and quantity in the SNF pharmacy delivery/provision process, CMS is proposing a requirement that would prohibit the dispensing pharmacy from also being the consulting pharmacy in the SNF.  In short, one entity would be required to dispense the medication and the SNF would need to contract or employ, a separate consulting pharmacist or group to review and establish, clinical pharmaceutical plans of care.  CMS assumes that this change will reduce the overall number of medications provided and improve care delivery. Perhaps but unlikely.  The true outcome is likely about the same level of prescription use in SNFs and higher costs for the SNF.  Consulting pharmacists and pharmacists in general are in short supply.  For most SNFs, finding a consulting pharmacist separate from the providing organization will be difficult and expensive.  Even more problematic will be finding an independent consulting pharmacist or group with sufficient long-term care and geriatric experience to be of any benefit at all; for residents and the facility.  My take here is that CMS is wary of continued consolidation of institutional pharmacy providers such as Omnicare and PharMerica and is seeking a back-door method for constraining their growth across the post-acute spectrum.
  • Doc-Fix and Sustainable Growth Formula: I touched on this earlier but there is a real side issue to watch and it has nothing to do with the payment issue to physicians.  The SGR and the physician payment formula also encapsulates a whole host of outpatient services tied to this element of Part B.  For post-acute providers, the target to watch is outpatient or Part B therapy rules and payments.  As goes the SGR debate, so goes the prospects for payments for other Part B services such as therapies.  Frankly, any fix to the SGR and physician fee schedule issues needs to occur separate from the other Part B elements presently included within the SGR mess.
  • Home and Community Based Services: What once was a flourishing sub-industry is soon to be no longer.  I touched on this briefly in the section on Medicaid.  This element is at significant risk for post-acute providers as funding is tight and most states are looking at any opportunity possible to reduce their HCBS programs, reign in eligibility growth or receive waivers from the Feds for wholesale discontinuation of certain programs.  The reason?  Institutional care and medical care cannot by law be cut whereas these programs are waiver programs; not presently, expressly required by Federal law.
  • Tighter Regulatory Scrutiny: Somewhat parallel to the pharmacy issue above, CMS is foretelling a renewed vigilance on certain post-acute practices and relationships.  I am reading and hearing all too many comments and stories regarding CMS closely watching and even planning to directly interject via probes and audits ( and perhaps rule-making), relationships between SNFs and contract therapy companies, pharmacies (see above) and SNFs, SNFs and Hospices, and ancillary medical equipment providers (wound vacs, specialized mattresses, fall prevention devices, etc) and SNFs.  The tone here is that CMS believes these relationships exist to optimize profit for the parties and to capture larger elements of reimbursement, not to improve care outcomes or efficiencies.
  • Increasing Demands on Physician Engagement: For most post-acute providers, physician engagement such that the same was tied directly to reimbursement was never a major issue.  This trend unfortunately, is here to stay and will increase.  CMS believes that in Hospice and Home Health particularly, unneccessary services were provided without established medical necessity or justification.  Both home health and hospice now have face-to-face requirements for physician certification of necessity for services/care.  The next phase of this, and I guarantee this will happen in the next year or two, is direct engagement and oversight of CMS in the relationships between physicians and the organizations and the content of the documentation of medical necessity or justification.  Providers need to be vigilant here or face claim denials in increasing numbers.

October 21, 2011 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | Leave a comment

Post-Payment Reductions: Build a Revenue Model for Success

Not too long ago I wrote a post for SNFs regarding “what to do” in preparation for October 1 rate reductions.  Since then, I’ve fielded inquiries galore from all kinds of providers looking into a future that likely includes Medicare and certainly, Medicaid rate/payment reductions.  In most cases, the answer that I provide is clearly more confusing and complex than many want to hear.  In an attempt to provide additional clarity across the board, regardless of provider type (SNF, Hospice, Home Health, etc.), I decided to write what I hope, is a simplified approach to creating a level of revenue stability in a tight to declining environment.

The typical reaction from most providers I work with is a quick turn to expense reduction as a means of combatting reducing revenues.  Often times, the immediate actions taken provide only a short-term respite to margin erosion followed closely by a steady erosion of margin.  The reason?  The most apparent and easiest places to cut such as staffing reduce service and quality.  Consistent reductions in care are followed by consistent erosion in revenue via occupancy or alternatively, higher expenses in the form of staff turnover, compliance problems, etc.  The plain fact of health care life and frankly, business life in general is that a company cannot save itself to a consistent profit.

The alternative approach that I recommend providers adapt is a more fundamental, less variable expense focused model; certainly one that doesn’t quibble with incrementalism as a means of dealing with margin via expense reductions.  The start of this approach focuses on three key axioms.

  1. Price = Fixed Cost + Variable Cost + Margin.  In this case, price isn’t truly at the control of the provider.  Substitute Per Diem Net Revenue for price. 
  2. Net Per Diem Revenue is driven up by productivity, especially billable productivity and case mix.  If the equation doesn’t work to produce the margin desired, focus more on productivity and issues such as occupancy and case-mix before attempting to drive down variable costs, unless the variable cost reductions consist of “low hanging fruit” (e.g., too much overtime, agency use, supply and food waste, etc.).  Most providers believe wrongly that a Medicare expenditure reduction translates equally for all providers in the form of rate.  The reality is that some providers, even in spite of rate or expenditure reductions, can make wholesale gains in their Net Per Diem by improving their productivity and case-mix.  Simply put, improving case-mix to higher paying categories, even those impacted by rate cuts, can improve per diem revenue.  While Medicare and Medicaid may provide uniformity in the form of rate reductions, providers and their patient mix are far from uniform.  The proof is in the impact initially to per diem revenue and then what changes can be implemented from a revenue enhancement strategy that still, even with cuts, increases net per diem revenue.
  3. Begin to think of expenses as an investment in revenue or sales, not compartmentalized as a separate unrelated item.  From this view, room may exist to make “investments” that drive more revenue and thus, in proportion, more margin.  Commonly put, this is an ROI approach.

Building a revenue model is fundamentally about maximizing the elements of the business that are tied to sales and tied to payments.  It is less about the concept of “more is better” and all about the concept that “better is better”.  For example, and employing a bit of algebra, the equation in point one above affords me the opportunity to eliminate any of the four item variables and determine what “each” unknown variable should be.  Typically, that means that I start with Fixed Costs as by their nature, they are known and fixed.  I equate these to a per diem.  From this point, I will add-in a margin and my current or anticipated Price expressed as my Net Per Diem Revenue (this number should approximate very closely, a cash value per diem, before expenses).  For example, assuming a fixed cost per diem of $75.00, a net per diem revenue number of $400 and a desired margin (I prefer operating margin, removing non-cash expenses from the calculation) of 20% or $80.00, my variable expenses per diem can equal no more than $245.00.

Using the above example, if my current variable expenses are running higher than $245.00, I will look first, and directly, at ways that I can improve the net per diem revenue number, not at cutting the variable expenses to achieve my margin.  Why?  The simplest answer is that my variable expenses at a certain volume become somewhat fixed and cutting can become an indiscriminate process that is less tied to revenue and margin and more tied to “ease” that ultimately, erodes revenue and margin.  Specifically, I’ll look at five elements that directly correlate to net revenue.

  1. Occupancy or Census – how productive are my variable expenses?  In certain instances, improving net revenue involves right-sizing operations to the proper level.  In this view, the focus is less about cutting variable expenses but more about making sure that my expense levels are tied to the actual volume that the business organically generates.
  2. Marketing/Sales – can I increase my volume, occupancy, census, etc via a more effective marketing/sales effort?  In this case, I will likely make investments but I will match my investments against an expected return that is substantially greater than the outlay, accretive to my net revenue.
  3. Case-Mix Productivity/Payer Mix – do my current level of variable expenses support a higher acuity or a greater level of case-mix acuity?  Productivity is not just about everyone being busy.  It is also about the core competency of the staff and the ability of the organization to do more with the same level of staff.  I recognize that incremental expenses in terms of supplies, drugs, etc. will likely increase but as long as the increase is less than the net revenue increase at the desired margin level (net revenue increase minus incremental expense increase = desired margin), it is worth the investment.
  4. Investment in Variable Expenses – can I improve my staff levels, hire additional people, to increase volume or case-mix acuity?  At certain points, the best answer isn’t reducing variable expenses but actually increasing them if doing so improves my organization’s ability to handle more volume or a different, better paying volume.  I have seen all too many organizations shy away from taking certain, better paying cases simply because the investment in different, more expensive staff seemed out of the question from a budgetary standpoint.  In reality, if a market exists such that the investment can be productive and the volume sustained, the ROI calculation may in fact, support the investment.  Again, as long as the net incremental increase in revenue is greater than the net incremental increase in variable expenses at a level equal to or greater than the desire margin, the investment is worth it.
  5. Investment in Fixed Costs – can I make a plant, property or equipment investment that improves my marketing, my positioning, or increases my productivity and volume/census?  Fixed cost investments can sometimes be the most obvious and the easiest to justify.  Their impact on the per diem side is typically nominal unless the investment was tied to debt and a major project.  Likewise, the ROI is easier to calculate as it can be two-sided; improve revenue or improve efficiency by reducing other expenses or improving productivity. 

While I can’t use current or former work examples with specifics without violating certain privacy expectations, the following are three simple “real world” cases or scenarios that I worked through with organizations that illustrate the principles above.

  • For a home care/hospice organization that consistently missed referral opportunities and experienced fairly large case-mix and volume fluctuations, we simply added two staff positions that served as “intake coordinators” (not the actual titles).  The primary responsibility of these positions was being in the hospitals, nursing homes, etc. where the referrals came from.  Being proactive and working directly with discharge planners, physicians, etc. allowed the organization to develop a more stable pipeline of referrals, better case-mix, and frankly, better care and service.  The return on this investment in short-order was a significantly greater revenue multiple.
  • For an SNF that was traditionally in the mid-ninety percent occupied, we looked at the complement of payers and the allocation of rooms from a revenue perspective.  The room mix was approximately two-third private and one-third semi-private.  To stay full and meet occupancy targets, the SNF relied on poorer quality payers (Medicaid primarily and some hospice) to keep the semi-privates full.  The solution was simple: Right size the room mix to all private which could be occupied by a higher paying mix while increasing slightly, acuity and re-organizing staff.  The fixed-cost investment was fairly minimal as turning the semi-private rooms to privates involved initially, removing a bed, rearranging furniture, and centering the over-bed light into a single position.  The building became more efficient, stayed full with a waiting list, and the overall revenue per room and the net revenue per diem jumped by 30%.
  • For another SNF that was traditionally mid-ninety percent occupied, primarily with private pay and Medicare (virtually no Medicaid), the issue was all about low acuity and insufficient staff capability and infrastructure to support a stronger payer mix.  In this instance, we worked to bring therapy in-house from a contract provider, increased RN staffing and decreased CMA and CNA staffing, expanded therapy services to six days, started taking admissions six days per week and increased acuity and thus, even with pending/current Medicare rate cuts, we were able to jump per diem from less than $400 per day to nearly $450 per day, increasing overall Medicare census and improving staff productivity.  We also jumped Med B utilization which was non-existent and moved the overall revenue level current and pro forma (forward), up by nearly 20%.  The additional expense in new staffing, etc. increase variable expenses per diem by 11%.  The overall change was a positive increase in margin of just shy of 9% which when added to the current margin (cash margin) of 13%, pushed the level above 20%…a level this organization believed, for a non-profit, was unattainable without sacrificing “quality or service”.  In the end, both improved along with the margin.

October 12, 2011 Posted by | Home Health, Hospice, Senior Housing, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

Post-Acute Outlook Post Debt Ceiling, Post Medicare Rate Adjustments, Etc.

OK, the title is a bit wordy and trust me, I could have included more “posts” but I think I got the point across.  First, I’ll admit to having a crystal ball however, the picture I see is a bit like the first (and only) television set I remember having as a kid: Not in color, lines running vertically and horizontally, snow, and an antenna that required frequent manipulation and tin foil to get any kind of reception.  And of course, there were only three channels available.  The same today is true about my crystal ball on health policy and what to expect in the post-acute industry. 

My crystal ball’s three channels are Medicare, Medicaid and the Economy.  Reviewing each, here’s the programming I see for the fall lineup or if you prefer, the period post October 1 (fiscal year 2012) through early next year.

The Economy: The debt ceiling discussion and the actions taken by S&P and the Fed in the last couple of weeks are a reminder via a cold slap, of how mired in dysfunction Washington remains and how moribund the economy truly is.  While technically not in a recession, the economy is not really growing either; a growth rate of less than 2% in GDP is like treading water.  For unemployment to change, consumers to return and capital to re-enter the business investment side, GDP growth needs to be above 2% and ideally north of 4% for a sustained period.  Unfortunately, in order for this to occur, fiscal policy in Washington needs to develop some semblance of coherency and consistency.

What I know from my economics training and background and my last twenty-five years plus in the healthcare industry boils down to some fairly simple concepts.  These concepts are I believe, a solid framework for providers to use in terms of planning for the near future and even somewhat beyond.

  • The U.S. debt level is fueled to a great degree by entitlement spending, less so by discretionary spending.  If the prevailing wind is about debt reduction and balance in the federal budget (or getting closer to balance), two things must occur.  First, spending constraint where spending primarily occurs, namely entitlements.  Second, revenue increases in some fashion, namely taxes.  The devil as we know it today, is how and where on both sides of the ledger (revenue and expenses).  Spending reductions alone are insufficient, unless dramatic, to significantly lower the debt level or balance the budget; particularly in a period of near zero economic growth.  Dramatic spending reductions are clearly unwise and potentially, deleterious to an industry sector (healthcare) that continues to provide steady employment.  Similarly, for spending reductions on entitlements to truly have a positive impact and make sense, program reform must be at the forefront of “why” less spending is needed or warranted.  Program reform, ala the health care reform bill which didn’t really reform Medicare or Medicaid but added new layers of entitlements, is far from the answer.  For providers, there is no immediate or for that matter, longer-range future that doesn’t entail less spending on Medicare or Medicaid.  As the only “trick” in Washington’s bag or the bags contained in the statehouses is rate cuts, anticipate and plan for the same.
  • A lackluster, no growth economy with high unemployment levels fuels provider competition wars over paying patients.  As fewer paying patients are available and/or fewer “good” paying patients are available, providers will compete for the same market share within and across the industry levels.  What this means is that providers will seek to acquire market share within industry segments (home health, hospice, SNF, etc.) and across industry levels (hospitals seeking to maintain patient days versus referring to post-acute providers).  The end result is more or similar levels of M&A activity, if capital remains available, and thus, consolidation that is driven primarily by market share motives.
  • According to a recent healthcare expenditure outlook released by CMS, healthcare spending is projected to reach $4.6 trillion by the end of the decade, representing nearly 20% of GDP.  The primary contributor to this projected level of growth is the Affordable Care Act, principally due to the expansion of Medicaid and the requirements for private insurance coverage (Medicaid growth of 20.3%).  While CMS notes that Medicare spending may slow somewhat, this assumption is predicated upon the continuation of spending cuts and a 29.4% reduction in physician payment rates required under the current Sustainable Growth Rate (SGR) formula.  Assuming, as has historically occurred, Congress evacuates the cuts called for under the SGR and as has been discussed, moves to a formula tying payment to the Medicare Economic Index, Medicare spending accelerates to a 6.6% growth rate (1.7% projected for 2012 with continuation of the SGR).  Summarized, health spending is the two ton gorilla in the room and it will continue to have a heavy, significant influence on economic policy discussions at the federal level and beyond.  Though I don’t agree with the recent rating action taken by S&P, it is impossible to ignore the consensus opinions of allof the rating agencies: Entitlement spending, namely driven by healthcare spending, is unsustainable at its present level with the present level of income support (taxation) and as long as the status quo remains fundamentally unchanged, the U.S. economy is not fundamentally stable.
  • Current economic realities and the rating agencies actions and statements foreshadow a stormy, near term future for the healthcare industry.  As is always the case, there will be winners and losers or more on-point, those more directly impacted and those less so. On the post-acute side, excluding reimbursement impacts, I’ve summarized my views on what I see in terms of economic impacts for the near term (below).
    • The credit rating side will remain pessimistic for most of the industry “brick and mortar” providers.  Moody’s, Fitch, will continue to have negative outlooks on CCRCs, SNFs, etc. primarily due to the economic realities of the housing market, investment markets, and reimbursement outlook.  Within this group of brick and mortar providers, Assisted Living Facilities will fair the best as they are the least impacted by the housing market and for all intents and purposes, minimally impacted by reimbursement issues (save the providers that choose to play in the HCBS/Medicaid-waiver arena).
    • The publicly traded companies (primarily SNFs but home health and LTACHs as well) will continue to see stock price suppression due to the unfavorable outlooks and credit downgrades provided by the rating agencies.  This will occur regardless of the favorable earnings posted by some of the companies.  Reimbursement trends (down) are the primary driver combined with the hard reality that Medicaid is in serious financial trouble, even more so going forward as enrollment jumps due to continued healthcare reform phase-in schedules.
    • Capital market access will continue to be tight to inaccessible for some providers.  Reimbursement, negative rating agency outlooks, lending/banking reform, above historic levels of failures/bankruptcies, etc. all continue and will remain as an overhang to the lending environment.  Problems with potential continued stable to increasing funding levels at Fannie, HUD, etc. create additional credit negativity and tighter funding flow.  Capital access, when available, will continue to have a credit premium attached, in-spite of low base rates.  I expect to see continued development and demand for private equity participation.
    • Given the above, financially driven mergers and acquisitions will remain somewhat higher as organizations seek to use the M&A arena to create financially stable partnerships and bigger or larger platforms from which to derive credit/capital access.

Medicare: The problems with Medicare are too deep and lengthy to rehash here and thus, I’ll move to brevity.  Medicare is, as I have written before, horribly inefficient, bureaucratic, and inadequately funded to remain or be, viable.  As a result, only two real scenarios exist today: Cut outlays or increase revenues.  Arguably, a third that involves portions of each scenario is the most probable solution.  Real reform is light-years away as the current and forseeable political future foretells no scenario that includes a Ryanesque option (Paul Ryan plan from the Republican Congressional Budget and/or Roadmap for America).  Viewed in this light, the Medicare outlook for post-acute providers is as follows.

  • For SNFs and Home Health Agencies, reimbursement levels are on the decline.  The OIG for CMS and MedPac have each weighed-in that providers are being overpaid.  Profit margins as a result of Medicare payments or attributable to Medicare, are deemed too high (mid to upper teens) and as such, the prevailing wind is payment or outlay reductions.  The bright-side if such exists, and as I have written before, this “cutting” trend will impact some providers far more than others.  The providers that have relied heavily and primarily on certain patient types for reimbursement gains will be more negatively impacted than providers with a more “balanced” book – a more diverse clinical case mix.  The movement is toward a more balanced level and thus lower level, of reimbursement theoretically closer aligned with the actual clinical care needs of patients.  Providers with more diverse revenue streams and more overall case-mix balance will not be as adversely impacted although, the Medicare revenue stream will be lower or less profitable.
  • Hospice has remained relatively unharmed, principally due to its lower overall outlay from the program.  It remains a less-costly level of care than other institutional alternatives.  A note of caution here is important.  While rates have not been cut, program reform is occurring on the fringes and I suspect a wholesale re-design of the Medicare Hospice benefit is forthcoming.  In such a fashion, payment reform rather than rate reform or reduction will occur.  The obvious trend is to restructure payments away from a reward for lengthier stays and to require more precise determinations of terminality, tied to a tighter or imminent expectation of death.  OIG and MedPac have issued a number of papers and memos regarding the relationships between Hospice and SNFs that correlate to longer stays for certain diagnoses.  Summarized, payment reductions via rate are less of an issue but utilization reform is forthcoming via additional regulation designed to reduce overall payments to Hospices or as CMS would say, to more closely align payments to the real necessity of care for qualified, terminally ill patients.  Without question, the largest impact (negative) going forward will be on hospices that have sizable revenue flows tied to nursing home patients.
  • LTACHs are in a similar reimbursement boat as hospice; small overall outlay within the program and for the past few years, minimal expenditure growth.  The industry is from a cost perspective, fundamentally flat.  What will be interesting to watch is whether under certain aspects of healthcare reform, this niche’ takes on a growth spurt.  Bundled payments, ACOs (Accountable Care Organizations), and shifts in SNF reimbursement away from higher acuity, rehab patients may lead toward more utilization of the LTACH product.  This being said, the prevailing Medicare reimbursement profile is fundamentally flat.  Given a bit more creativity on the part of the LTACH provider community, this segment may be poised for some growth, although not directly via increasing payments.
  • The most uncertainty lies on the Part B provider side, particularly providers that are reimbursement “connected” to the Physician Fee Schedule (therapy for example).  As of today, the required change to the fee schedule as a result of the Sustainable Growth Rate formula is a fee cut of 29.4%.  It is quite possible, due to the current negative or flat growth trajectory of the economy, and sans any change in the law, for fees to be cut again in 2013, barring Congressional action.  Most acutely impacted in this scenario are physicians and predominantly, primary care physicians.  I have yet to see a Congress that fails to intercede and repair cuts this draconian but the political times and the budget deficit debates are markedly different than during any prior period.  Critical to whether this cut or some level less than this is implemented is the issue of access, already a hot topic for physicians.  Physicians, particularly primary care specialists, are already in short-supply nationally, woefully short in certain markets.  If cuts of this magnitude or perhaps any magnitude roll forward, I suspect many physicians will curtail or close their practice to new Medicare patients.  On the other side represented by non-physician providers, Part B cuts of this magnitude will no doubt limit service and access.  Fixing the formula and the law has been difficult for Congress as the dollar implications are substantial.  I foresee another round of patches, etc., occurring close to the “cut” date, especially since 2012 is an election year.

 Medicaid: For as many reasons as Medicare is a mess, Medicaid is as well, though magnified by a factor of two or more.  Medicaid’s biggest problem now is rapid growing enrollment, primarily due to high unemployment and upcoming federal eligibility changes mandated via the Accountable Care Act (healthcare reform). Given Medicaid’s current funding structure, this issue poses huge problems in flat to negative growth economies.  States simply due not have the revenue to create a higher matching threshold or level, necessary to achieve more federal dollars.  In July, the enhanced federal match provided via the Recovery Act (stimulus) sunsetted leaving states with huge structural deficits and the prospect of deficit growth due to increasing enrollment.  In virtually every state, rate cuts have been discussed and in half-again as many, implemented.  States continue to move to the federal government seeking relief from required or imputed service provision requirements and/or relief from eligibility requirements (waivers).  The inherent difficulty with balancing Medicaid funding is that the same is directly tied to stable to growing state revenues and a clear picture of population risk or need.  Changing (increasing) populations often present adverse-risk scenarios, creating higher than normative utilization.  For obvious reasons, lower than market reimbursement levels, access is a big issue.  Not all providers willingly and openly desire Medicaid patients and those that do are not on the increase. Without additional funding assistance at a level beyond what is called for in the Accountable Care Act, regulatory relief and an improving economy, the reimbursement prospects under Medicaid are all bleak.

  • In the post-acute environment, the biggest impact of this continued ugly Medicaid scenario will fall directly on SNFs.  Matching prospective or real Medicaid cuts with Medicare cuts forthcoming is a true “negative” Perfect Storm.  For most SNFs, Medicaid is the largest payer source and until recent, Medicare was used as a make-up funding source for Medicaid reimbursement shortfalls.  Adding fuel to an already smoldering fire, the suppressed earnings available to seniors, no growth in Social Security payments, and a stock market that presently produces only a flat return trajectory limits the pool of private paying and privately insured patients.  In short, there is no additional room on the revenue side to make-up an SNFs Medicaid losses.  For SNFs, only the few that have limited leverage, high occupancy, an extremely balanced payer mix, and stable staffing will weather the Medicaid near term future; a future of no rate increases or likely cuts.
  • While not a huge segment of the post-acute environment, HCBs providers will feel the Medicaid pinch as well.  As a result of needing to reign in Medicaid spending, states are rapidly curtailing their funding and payment levels for HCBs programs.  While most states still claim that HCBs expansion would help soften their Medicaid deficit, states that bit a big bullet in this arena early on (California for one), now realize that waiver programs produce massive new levels of beneficiaries who want and need access to community support services.  SNF access was already somewhat limited as the industry has truly shrunk but the demand for services in this growing eligibility pool has expanded.  Funding these services is becoming a real problem for states and as such, support payments will remain flat, decline and program growth will be capped.
  • Home Health will also feel a bite from declining Medicaid funding although its Medicaid utilization levels are modest at best.  For Home Health, Medicare is the big dog and Medicaid a minor element.  Staffing costs are on the rise for Home Health as the competition for home health aides in many markets is brutal or getting rough.  Competition, even in a high unemployment environment, for certain categories of employees, raises wages and benefit costs.  Staffing is the largest expense for a home health agency and as such, a scenario with rising employment costs and flat to declining reimbursement negatively impacts margins.  I don’t see this scenario changing any time soon.

Concluding, this may be one of my most depressing posts, if for no other reason than the current external view is dreary and nothing foreshadows improving weather.  For brick and mortar providers, capital access is critical, especially for SNFs who have as a profile, some of the oldest physical plants.  SNFs are capital-intensive operations and without an ability to fluidly and reasonably, access modest cost funds, deferred maintenance (already high) will increase.  With so much revenue tied to reimbursement and a reimbursement outlook that is negative, it is unlikely that capital will flood back to the post-acute industry.  Critically important to the viability of this sector is an improving economy combined with regulatory reform that, if reimbursement remains flat, allows providers to become truly more efficient. In short, increased program revenues under Medicare and Medicaid due to economic growth, will ease a lot of the immediate crunch and perhaps, buy sufficient time for absolutely critical, health policy reform.

August 26, 2011 Posted by | Assisted Living, Home Health, Hospice, Policy and Politics - Federal, Senior Housing, Skilled Nursing | , , , , , , , , , , , , , , , , , , , , | 4 Comments

OIG on Hospice: Restructure Hospice Payments for SNF Residents

This past week, the OIG released a report that represents a more definitive study of hospice payments and utilization trends under Medicare.  The report is effectively a follow-up to recommendations made in MedPac’s annual report(s) to Congress.  The report provides a review of OIG’s analysis of the growth of Medicare covered hospice patients over the period 2005 – 2009, specifically as such growth relates to the provision of Hospice services within SNFs.  For the last three to four years, MedPac and to a lesser extent OIG, have commented about the rapid growth of hospice utilization under the Medicare benefit and the corollary relationship between this growth and SNFs, particularly as the same relates to for-profit hospice organizations.  For more on MedPac’s report to Congress and their recommendations/analysis regarding Hospice, see my related post on this site at .

Per OIG, Medicare spending for hospice services provided to SNF residents increased 69% between 2005 and 2009.  In total dollars, the amount grew from $2.55 billion to $4.31 billion.  During this period, the number of hospice beneficiaries residing in SNFs grew by 40%.  Not surprising, during this same period the total number of hospices participating in Medicare also grew; the growth dominated by for-profit organizations.  According to the OIG, hospices organized for-profit received higher levels of reimbursement on average (29%) compared to non-profit and governmental operated hospices.

Specifically related to hospice services provided to SNF residents, 8% or 263 hospices had two-thirds of their cases comprised of SNF residents.  Of this group of 263, 72% were or are, for-profit.  In total, 56% of all hospices participating in Medicare are for-profit.  Comparing reimbursement or payments and utilization, the group that incurred two-thirds of their cases via SNFs was paid more per beneficiary ($3,182) and the average length-of-stay in “benefit” was three weeks longer than the median average length of stay across the industry.

Table 1: Medicare Hospice Care from 2005 to 2009: Growth in Spending and in Number of Beneficiaries
2005 2009 Percentage Increase
Spending on hospice care in nursing facilities $2.55 billion $4.31 billion 69%
Spending on hospice care in all settings $7.92 billion $12.08 billion 53%
Number of hospice beneficiaries in nursing facilities 240,000 337,000 40%
Number of hospice beneficiaries in all settings 871,000 1,085,000 25%
Source: OIG analysis of CMS data, 2010; and OIG,Medicare Hospice Care: A Comparison of Beneficiaries in Nursing Facilities and Beneficiaries in Other Settings, OEI-02-06-00220, December 2007.

As I have written before, the dominant profile of SNF residents enrolled in hospice includes Medicaid as the primary payer source, a primary diagnosis for SNF residency of Alzheimer’s disease or some other form of dementia or mental disorder, and the SNF in which they (the residents) reside has a payer mix that is at least 42% Medicaid.  Additionally, the SNF resident has resided in the facility for a period of time (months) prior to enrollment within the hospice benefit.  None of this information is new or should I say “news”.  The SNF industry has quickly learned that transferring a certain liability for the cost of care of a Medicaid resident (drugs, certain supplies, some staffing) to a hospice that receives a routine hospice benefit under Medicare is financially advantageous, particularly since Medicaid continues to pay for the room and board costs of the SNF.  In fact, the vast majority of state plans do not coordinate benefits with the Medicare Hospice benefit, leaving the facility to collect the full Medicaid rate for the resident’s stay while transferring an increment of care costs to the Hospice.  Clearly, this niche is advantageous financially for the Hospice and the SNF.  The Hospice, given the infrastructure of caregivers and other on-site SNF staff, can minimize its visits (substantially less in number than provided to a typical home-bound patient), effectively increasing its marginal profitability.  The SNF transfers certain costs to the Hospice, now paid as part of the Hospice benefit while still receiving the total amount of the Medicaid payment.  While I won’t say this makes Medicaid a profitable payer, it certainly increases the marginal revenue contribution from a group of now, hospice covered residents.  As the OIG and MedPac have observed, the SNF resident hospice patient tends to be a patient with a terminal condition but arguably, one that is not necessarily imminent and/or in some cases, even clinically supported. The end or net result is a patient profile that stays longer (covered) under the Hospice benefit.

Concluding within their report, the OIG makes two recommendations that on their face, don’t vary much from recommendations made by MedPac.  Their first recommendation is to monitor the activities of hospices with a high percentage of cases occurring in SNFs.  Their second recommendation is for CMS to alter or lessen, the level of reimbursement paid to a hospice for care provided to an SNF resident.  The report contains no recommendation of “how much” less.  MedPac in comparison has recommended that the Hospice benefit be scaled for SNF residents – higher on admission, less in the middle term of the stay, and higher again close or precedent to death.  For MedPac, this method more closely reflects the resources used or costs incurred by a hospice during a patient’s length of stay.

As I have indicated, this information is not new nor are the concluding recommendations.  The Medicare Hospice benefit is dated and not reflective of how terminal care occurs and/or should occur.  The system is ripe for fraud as CMS has not taken its time to scrutinize claims or the validity thereof, particularly for diagnoses that traditionally do not correlate to quick or timely death.  All too many for-profit, non-hospital aligned hospices have realized that sans the SNF resident market, the actual hospice market is fairly limited and not sufficiently deep to support the current number of agencies.  In other words, a hospice organized for-profit would likely have a difficult time sustaining its margins and building a sufficient base of business without SNF contracts.  Given this reality, and the reality that SNFs with large Medicaid payer percentages and long-term stays among its residents also benefit via a favorable hospice relationship,  the market reality becomes the same as concluded by the OIG.  Changing this paradigm won’t occur until three core elements of reform pertaining to the Medicare Hospice benefit occur. First, refined clarity of diagnosis appropriateness and stronger requirements on re-certification for additional benefit periods.  There exists sufficient clinical information to create clarity, even for end-stage Alzheimer’s/Dementia diagnoses.  Second, payment changes that take into account coordinated or bundled payments for Medicaid SNF and private-pay residents.  Neither the SNF or the Hospice should benefit disproportionately when a patient is on hospice.  Third, requirements of disclosure for all hospice/SNF relationships and contracts and requirements that no one hospice may provide exclusive services to an SNF.  Too many of the most egregious situations I have encountered occur when one hospice has entered into multiple SNF contracts, dominating the market and creating blatant “sweetheart” relationships.  Additionally, CMS must take proactive measures to perform timely claim reviews of SNF residents receiving hospice services – for all diagnoses – particularly involving disproportionate case-mix hospice providers (hospices with large number of SNF residents enrolled with certain qualifying diagnoses such as dementia, failure to thrive, and Alzheimer’s).

July 25, 2011 Posted by | Hospice, Policy and Politics - Federal | , , , , , , , , | 3 Comments

Accountable Care Organizations: A Post-Acute Perspective

Suffice to say, I am behind in getting this post “out”.  My best intentions of a month or so ago were quickly dashed by other more pressing commitments. Nonetheless, I did read the proposed regulations as produced by the Department of Health and Human Services/CMS on April 7 and worked through a stack of research on the subject of Accountable Care Organizations; loosely coined by me, the Good, the Bad and the Ugly.

In the purest of definitions, easily lost within the DHHS/CMS proposed regulations, Accountable Care Organizations (ACO) are about improving patient care outcomes and satisfaction while reducing cost or expenditures for care.  At the core of the premise about “why” and “how” an ACO would work in achieving better care, higher satisfaction and lower costs are three key assumptions or “truisms”.

  1. Best practices via algorithms and care pathways exist in sufficient supply, tested and proven, to reduce the variability that drives higher cost and lower satisfaction for a large and growing number of common patient care issues.
  2. Satisfaction is directly correlated to increased patient knowledge and communication, reduced bureaucracy at the provider level (fewer redundant steps) and better outcomes, more directly delivered and/or attained.
  3. Providers, properly incentivized to focus on outcomes and satisfaction will gravitate toward any and all steps and measures that improve outcomes and satisfaction and resultingly, deliver better and cheaper (less costly) care.  The key is developing the right level of incentives that drive provider behavior in the desired direction.

For years, I’ve written and lectured repeatedly that bending the cost curve or lowering the overall costs of health care in the U.S. system must first begin at the core of the issue; the system of reward.  A simple economic axiom defines this best; “what gets rewarded gets done”.  Fundamentally, the U.S. health system has rewarded in the form of payment, procedures, pills, tests, and surgical (or surgical-like) interventions at the expense of prevention and wellness/care management.  In spite of an enormous and growing body of evidence that much of the escalation of costs (steepening of the “curve”) in the U.S. is driven by chronic conditions poorly managed and lacking in early detection and prevention strategies, funding has remained skewed toward treatment practices that are technical and predominantly surgical or interventional in nature.  The result is poor to minimal access for Type II diabetics (as an example) to integrated chronic care programs designed to stave-off emergency room visits, loss of limbs, peripheral vascular disease, loss of vision, etc. while access to the latest imaging technology, interventional cardiac programs and surgery ranges from good to stellar and even drastically redundant in some markets.

Knowing the above and understanding that a fluid and flourishing economy has been built around this system, the belief or premise that one can design and make work effectively, a paradigm shift such as is intended with ACOs is curious at best.  Suffice to say that while I know such a premise makes sense (Accountable Care Organizations), I’m less than certain from my read of the proposed regulations and knowledge of the current system, how incentive realignment will work to first, bend the “cost” curve and second, create a necessary body of invested, at-risk stakeholders willing to place their economic futures (such that they are) in the hands of a governmental half-and-half, moving payment system.  Moreover, the initial investment capital is clearly all provider capital placed at first dollar risk and the shared-savings return proposed, provides a poor return on the capital invested.  This is particularly true for the post-acute elements critical in the formation of a truly functional ACO.

For an ACO at is primordial core to work (achieve the desired outcomes), hospital utilization and the most expensive clinical utilization must be diminished.  Diminution of such care is achieved primarily, via three methods/interventions/actions.

  1. Primary care available and accessible enough to create consistent early detection and provide low-cost interventions that arrest a progressing disease-state prior to an acute event that ordinarily would cause hospitalization.  In the case of Type II diabetics for example, education and monitoring of insulin levels and Ha1c to create optimal therapy and patient knowledge and disease management efficacy that delays and avoids, hospitalization and interventions on a crisis basis.  By simply deferring and/or avoiding, undetected and untreated peripheral leg and foot ulcers, thousands upon thousands of days of hospitalizations for amputations and/or intravenous therapy for infections can be avoided – annually.
  2. Delivering care in lower-cost settings or alternative settings, non-hospital based, nets enormous savings.  As payment today is skewed toward hospitalization and hospital-based care, patients disproportionately receive care, tests, procedures in hospital settings.  A primary example of how skewed the system has been is the artificial and unnecessary three-day prior hospital stay qualifier in order to receive Medicare coverage in a nursing home.  Equally as non-sensical are the present Part B outpatient therapy caps for any non-hospital based and provided therapy.  I could literally list hundreds of payment and care provision inequities but my point is made.
  3. True integration and data sharing among providers must occur and each provider must bear an incremental reward benefit and/or downside risk.  If providers cannot access data fluidly on a patient population and share best practices encompassing steerage to the most cost-effective,  best-outcome sources for care without fear of system reprisal, holes and gaps to effective care delivery at the best price/cost will remain too plentiful.

Taking the above into account, two major obstacles still remain in terms of successful development of an ACO.  The first is patients, now indoctrinated into a system where pills, brands, certain tests, and other non-proven care modalities are expected, nay demanded.  Simultaneous, this same group is famous for varying elements of non-compliance born out of a belief (though untrue) that most anything has a “medical fix” component.  All the best practices and lower-cost alternative settings can’t overcome patient behavior unless and until, patients are part of the risk-benefit system.

The second obstacle, touched on earlier, is the system of reward or the model of risk-benefit.  The ACO core model is one of risk-sharing; gains in the form of varying levels of saving returned to the providers willing to bear “risk” in the form of higher than desired utilization, costs, etc., or outcomes including satisfaction that are below certain pre-determined and desirable levels.  The inherent fallacy within this concept is multifaceted to say the least.

  1. As indicated, patients are a true wild-card; both in terms of behavior and health status.  As the patient remains effectively detached from the risk-benefit equation, behavior is left to chance.  Additionally, health status going into the population on behalf of patients is effectively unknown.  In short, a “ticking coronary time-bomb” may be present (or similarly present) creating a cost and outcome explosion that defeats the opportunity of an ACO to truly deliver effective savings.  The inability in the present regulations to set a path for securitizing against this risk and for truly integrating patients into the risk-reward equation (some element of cost-share broader than present) makes the attainment of long-term savings at a significant level, illusory.
  2. For many providers (or perhaps all) the up-front investments in terms of technology and service accessibility are steep.  This is dramatically so for post-acute providers as the Federal Government refuses to offer any resources for technology investment – not the case with physicians and hospitals.  This is fundamentally illogical as a major element to delivering true savings is via the full use of alternative care settings – lower cost options for care such as therapy/rehabilitation, chronic disease clinics, etc.  What occurs as a result of this enormous “up front” investment is a return on investment profile that is marginal to poor; in most cases (and in all that I have analyzed) below the organization’s cost of capital.  Additionally, the prospective savings return is not fluid or rapid leaving providers with a self-funding equation of producing results, subsidization of investment and cash flow, netting a return that is below any other reasonable and readily available alternatives.
  3. The sharing of incentives is impractically aligned such that the largest sources of current costs stand to lose the most while the post-acute elements stand to gain the least, though as the above occurs, the distribution is far from quid-pro-quo.  Briefly: ACOs begin fundamentally with physician groups and hospitals.  To fully achieve functionality and to meet the objective of better care provided cheaper, other providers core to the care continuum must be brought into the ACO.  Hospitals primarily have invested heavily in the current system of fee-for-service reimbursement, building environments that return the most on investment when heavily utilized on an in-patient and procedural basis.  It is illogical to assume that for most hospitals, voluntarily steering utilization elsewhere to lower cost settings or abating certain levels of utilization altogether in exchange for “shared savings” spread across the ACO players is a winning proposition.  On a similar plane, the same is true for physician specialists.  Interventional cardiologists will be hard-pressed to forego any elements of business financially and in honest reflection, Medicare-age patients are a major (if not the primary) source of patients.  For post-acute providers, utilization should likely increase as their services are more cost-effective but as established, these providers are bit players in the ACO game and while perhaps the most effective element in controlling costs and utilization, not proportionately rewarded.  Their participation for example, is all down-streamed through the ACO.

Forming a post-acute synopsis of the current ACO landscape is as simple as this: Play at your own risk.  There is little for most post-acute providers to gain within the present ACO framework, financially.  All gains are more market and patient-flow related.  The investments in terms of technology are steep and unsupported via government funding.  Similarly, the net margin attainable via an ACO that is at “risk” or participating in shared savings is less than adequate to support a return on capital investment scenario that justifies the up-front costs.  Personally, I would treat ACO participation at this stage as exploratory only; a devotion of only a small investment on-par and an expectation that minimal financial gain will occur, if any.

It stands to reason that some provider elements within the post-acute industry will stand to benefit better than others if for no other reason that they are already aligned from a business perspective to do so. LTACHs could reap significant market share if they can pose as legitimate first-admit options to an acute hospital.  SNFs that are and have been, operating as true transitional care providers with in-house, integrated services could become major partner players within the ACO landscape.  Key however to an SNF’s viability is some reform from three-day prior hospitalization requirements and relaxation/elimination of the Part B therapy caps.  Home health agencies that already have an infrastructure for electronic charting, referrals and a strong physician partnerships and hospital referral/discharge relationships are the most logical post-acute, ACO partners. The ability of a home health agency to manage a more complicated patient directly discharged from a hospital as well as bring into the home, core chronic disease management services adjunct to physician care is an ACO necessity.  As today and for the foreseeable future, ACO realization or not, Hospice will remain only a bit player, if that.  While Hospice is an effective alternative to more costly inpatient care when continued inpatient care and/or other procedural steps are unwarranted, getting patients, their families/significant others, and the physician community in general to openly embrace Hospice early and frequently is not going to occur simply because of an ACO.  Hospice, as I have written before, is a niche’ in the post-acute continuum and nothing within current trends suggest to me that the U.S. health system and patient expectations are moving to a deeper appreciation for or understanding of, the role hospice can and should play.

June 6, 2011 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , , , , | 2 Comments

Hospices Looking for Census Improvements: Add Some Innovations

Most hospices I talk with are finding census gains difficult these days.  As I’ve written before, a number of factors are conspiring at the moment to keep census somewhat depressed and referrals tough to come by.

  • With a struggling economy, all providers are looking for paying patient days.  Referrals that should (or would) routinely go to hospice aren’t as readily available as upstream referral sources (hospitals, skilled facilities, etc.) don’t have the depth of other paying patient pools.  In fact, all downstream providers are seeing compressed referrals.  Simply put: When the queue of paying patients is smaller due to a fall-off of privately insured patients (due primarily to high unemployment), any paying patient including those that would be or should be hospice referred is better than a vacant bed.  There simply are not enough patients with good payment sources for all of the supply of providers today.
  • Hospice is a mature market or one that is stable and growing only very modestly.  Despite the fact that it is cost-effective, arguably more appropriate and better for a terminal or near-terminal patient, it hasn’t permeated the traditional patient, familial and medical community psyche to a sufficient depth to create additional demand.  Culturally, the medical community and patients still prefer to pursue curative options at virtually every step of the way as opposed to accepting death as a natural course of occurence. 
  • The financial incentives favor the pursuit of more expensive care as opposed to hospice.  Payment in our system is highest and most fluid for acute, episodic, technologically based care and treatment.  A simple economic axiom applies: What gets rewarded gets done (or, follow the money).

Taking the above into account, one would tend to think that generating additional referrals is an improbable task.  While I won’t propose that doing so is easy, there are some options in terms of “innovation” that make sense.  By innovation I mean programmatic changes or new programs that tap non-traditional markets or fractional markets.  Being honest, simply marketing more or trying desperately to educate a few more patients and/or a few more physicians about the benefits of hospice care won’t create many additional referrals (again, see the top bullets for “why”). 

Here are some favorites that I have seen tested in other settings, some within hospice programs, and/or other countries.  Each is innovative and worthy of exploration by a hospice organization that is looking to create some novel niches, incremental referrals and brand differentiation.

  1. Day Hospice: A variation on adult-day care, this program provides a respite style of program but for caregivers to take a few hour break.  Transportation, meals, socialization, etc. plus spiritual and other counseling typically round-out the services and where “cares” are involved, staff assist the patient as required.  A hospice could start such a program either via a partnership with an existing adult day care provider, SNF, Assisted Living, Hospital or on its own in a suitable location.
  2. Disease Specific Programs: Develop end-of-life algorithms and care management programs for specific diseases such as ALS, MS, Parkinson’s, COPD, etc.  Enlist physician specialists to provide review and consultation in the program development phase and even in a supporting medical director capacity.  Consult with the local chapters of groups/associations that represent each disease (Parkinson’s Association, MS, etc.). The result of this approach is a three-fold win for the hospice.  First, a segregated category of potential new patients.  Second, a branding opportunity and co-marketing strategy through the physician specialists and the local disease representatives.  Third, a focused opportunity to educate patients and physicians on when, why and how to make a hospice referral – these folks become a “warm” group.
  3. Embrace Alternative Therapies: Some organizations do this better than others but few do the compendium and certainly not as well as organizations in foreign countries (the Dutch are the best).  Here’s a few of the better concepts that I have run across.
    • Medicinal Marijuana: Now legal in 14 states and DC, medical marijuana is viewed as a wonder drug for symptom management, especially by cancer patients and patients with intolerable spasms (MS, Parkinson’s, etc.).  Embracing this option where legal and perhaps, even becoming a distributor creates a “cutting-edge” brand and a marketing advantage.
    • Acupuncture: For use either as a stand-alone symptom management aid or for adjunct therapy to deal with pain, nausea, spasms, headaches, etc.  Bringing on staff, a certified acupuncturist is again, a cutting-edge option and one that is marketable.
    • Mood Rooms: For inpatient programs, rooms developed with particular design elements have proven to be successful in easing patient’s symptoms and creating a more relaxed and tranquil environment.  Hospitals have started to embrace this level of design and there is no reason that hospices don’t do the same.  Everything from lighting to color to sound systems and views are designed to improve tranquility, comfort, and patient “mood”.
    • Others: Massage therapy, music therapy, hydrotherapy, meditation, etc., are all fair game and in one form of another, have legitimate bases for use in a hospice setting.
  4. Increase the Technical Capabilities: Being more capable in terms of taking certain types of complex patients is always a cost-benefit issue although, done correctly, the return is still positive “financially”.  Patients that often don’t benefit from hospice (due to cost issues)  include ventilator patients, patients that require palliative radiation or palliative chemo-therapy, and patients that require specialty DME.  In reality, the scope of each under a terminal diagnosis is limited and with solid advanced planning. good partnerships with other providers, and effective cost management, it is possible to tackle these patients and still achieve a modest margin.  Don’t be automatically afraid or unwilling to accept patients in unusual circumstances and actually, increase your technical competence in dealing with these patients.  They are an untapped market in many regards.
  5. Private Duty: For a hospice that is part of a home-care organization and/or can partner with such an entity, private duty hospice can be very profitable and very successful, albeit on a limited scale and honestly, only in certain market areas.  There remains a class of people that are terminally ill, hospice eligible and in-need (and desirous) of extended caregiver or private-duty support at home.  Targeting this market is as easy as developing good relationships with trust company officers, estate planning attorneys, and other trusted counselors to the “well-off”.  One word of caution persists, however.  This group is picky so to sustain the business, a hospice must be very customer service focused.
  6. Be Palliative, Not Just Hospice: For those hospices affiliated with home care agencies or, can build a relationship with a non-competing agency, offering expertise to patients that require symptom management and palliative services only makes sense, even if the same patients aren’t yet hospice appropriate or won’t at this point, consciously elect a hospice benefit.  Expertise in symptom management and the palliation of chronic diseases is the strength (or should be) of all hospices and leveraging this strength to “marginal” hospice patients builds a bridge for the hopefully, inevitable referral.  If nothing else, this business is incremental revenue.

As I indicated, the above is just a sample of my favorites from sources where successes have occurred.  I encourage readers to add others, different ideas or to elaborate on perhaps, a twist or two to the above.  Feel free to post your comments and experiences so that I (and you) can share our “collective” knowledge.

October 11, 2010 Posted by | Hospice | , , , , , , , , | 1 Comment