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Senior and Post-Acute Healthcare News and Topics

Debt Ceilings, Government Shutdowns and Health Policy

Most of my readers know by now that I am an economist by training and formal education.  My clients know this as well.  The net result is that I’ve been queried, almost to death as of late, as to what this current round of Washington folly is really all about.  Is it about the ACA?  Is it about the budget?  Spending? Is there really a debt ceiling, etc.?  Suffice to say, this post is intended as a concise answer (and no, economists are not known to be concise or clear on anything so I’m going out on a limb here).

While most Americans express concern over the amount of debt at the Federal level, the truth is that the amount is really not the issue.  The ratio of debt to GDP is the bigger issue plus the cost of servicing the debt as percentage of the revenue received by the government.  Today, the debt load is approximately $16 trillion (beginning of 2013).  Of this total, around $10 trillion arrived since 2002.  The $10 trillion is the result of the wars in Iraq and Afghanistan, entitlement growth, stimulus spending, tax cuts, and the recession.  Income flows into the government coffers reduce substantially during recessionary periods and periods of stagnant GDP growth.  As revenue evaporates faster than spending, and during recessions spending on behalf of the government normally increases (income support programs, entitlement growth, etc.), the deficit gap widens.  Deficits require funding (the bills must be paid) and thus, the source for the government is borrowing.  As of late (last few years), the government has borrowed more than $1 trillion annually to cover its cash outflow shortfalls.

While the question of long-term sustainability begs and the debate wages on about fiscal balance, the truth is that while this process (escalating borrowing) is on its face unsustainable, it is likely more temporary in nature than permanent.  At the very least, the policy drivers and economic factors will shift, altering the present course of borrowing.  For example, across the last two fiscal years, borrowing has reduced as budget deficits recede naturally.  Spending priorities in Washington have shifted and taxes increased.  The 2013 deficit will not exceed the trillion-dollar mark, coming in at $700 billion or so. As wars conclude and the economy recovers, even if slightly more than present, the deficit shrinks and the need to borrow is lessened.

What is central to the issues referenced in the title is the budgetary math and how the dollars are received and spent.  Within a budget of $3.8 trillion, two-thirds is allocated toward “fixed” or “mandated” spending.  That leaves $1.2 trillion in the variable or discretionary bucket.  Interesting to note, the budget proportion as a percent of GDP hasn’t changed all that much – up only 2% compared to the most recent forty-year average.  What has changed is the allocation percentages with more dollars spent today on entitlement programs.  For example, Medicare spending is nearly three times greater as a percent of GDP compared the forty-year average. Health spending is more than double and Social Security is one and a third times more.  Because the percentage of GDP spent is roughly the same, the offsets are found in defense spending, science and technology, general government and interest (yes, even with a rising debt level, lower rates have kept the interest cost lower than the historical average).

The government via taxes, will take in approximately $3 trillion.  The gap thus is $800 billion, give or take a billion or so.  This gap is the driver of borrowing limits and debt ceilings.  In effect, the debt ceiling is a self-imposed number and one that is totally arbitrary.  Congress established the debt ceiling back in 1917 with the passage of the Liberty Bond Act.  In the 70s, via passage of the Budget Control and Impoundment Act, the debt ceiling became less relevant.  Effectively, the debt ceiling issue was tied to the budget and a parliamentarian procedure known as the Gephardt Rule (after Congressman Dick Gephardt) allow the ceiling to automatically adjust incident to budget passage.  The problem to a certain extent of late is that the government hasn’t operated with a budget for at least three years and spending bills (appropriations) have stalled in the Senate.  Essentially, a debt ceiling discussion thus becomes separate from other fiscal operation activities.

So where are we now and what does this mean?  In cold hard reality, the issue of the debt ceiling is less about default on credit but about the ripple effect economically that will occur.  The U.S. really can’t default on its debt and does operate with enough cash flow to keep interest payments current.  The President does have unique authority via executive privilege and orders to adjust the U.S. borrowing limit.  The Treasury also has other temporary powers.  Using these powers is a last resort as doing so will certainly cause economic havoc world-wide via the real signal that the U.S. government is in chaos.  Remember, the stability of much of our economy is based on the stability of our systems of banking, credit and government – the full faith and credit stuff – nothing more.  If this system isn’t credible and stable, the erosion is tsunamic.

History and an updated view of the economic reality we live in, paints the true picture.  Today, our debt driver and our economic structural flaws within the government budget (such as it is) are entitlements as presently configured.  There simply is not enough room on the discretionary side or the variable side to right size the budget, offsetting the entitlement growth.  The demographic shift that is occurring in the U.S. and all first world countries (aging) is the catalyst. By 2033, 20% of our population will be 65 and older, eligible as presently configured, for Social Security and Medicare.  Moreover, the expenditure to income ratio per each under Medicare produces a significant outflow deficit.  For example, a 65-year-old couple in 2020, assuming average wages earned during their work years will contribute $110 thousand (with employer share) into Medicare.  Across their remaining life, Medicare will spend in present dollars, almost 4 times more ($430,000).  By 2022, Medicare spending is projected (under current law) to consumer 4.5% of GDP (3% today) and rise of 6.7% by 2035.  This net change equates to a spend rate of more than $1 trillion in current dollars on Medicare alone.

To the point: Health policy is the shutdown, budget and debt ceiling debate.  The good news is that it is fixable but the bad news is that it must be fixed by government.  There is no other course of action that can and will adjust the debt trajectory.  Now, hope is also muddled within the mix.  The healthcare industry has gotten smarter and evidence suggests that recent reductions in healthcare spending increases are as much due to more efficiencies in healthcare delivery (generic drugs, better insurance bargaining, smarter consumption habits of patients) as due to a weak economy.  A public-private initiative could create a paradigm shift, favorably changing the entitlement spending outlook.  Congress and the President will need to get creative and utilize a different legislative approach to resolve the present dilemma.

Is the sky falling because of too much debt?  Not really.  Governments and especially ours, don’t really need to be too concerned about the debt load in the short-run.  The concern is about changing or adjusting the factors that drive debt.  As long as the increase in new debt is less proportionately, than the increase in GDP, debt load as percentage of economic activity reduces.  For example, between 1945 and 1980, the government only encountered 8 years with surplus revenue.  Fully all other years involved deficit spending. In 1945, at the end of World War II, debt as percent of GDP weighed in at 120%. By 1981, the level subsided to 30%.  The reason?  GDP growth accelerated during these years and the deficits were relatively small.  The economic truth is that government policy needs to focus-in on all things fundamentally favorable to GDP growth while constraining with simple austerity, the deficit levels.  The debt problem thus resolves itself.  There is no need to “pay it back” and fundamentally, no reason to do so.  The best approach is to minimize its impact on the economy by fixing the root cause.  In this case, adjusting entitlement spending by relatively modest means (currently structural changes to reduce about $500 billion) is all that is needed.

October 10, 2013 Posted by | Policy and Politics - Federal, Uncategorized | , , , , , , | Leave a comment

Healthcare Polar Express

With the Holidays fast approaching and me, heading into a break and a brief vacation, the time is right to recap the current health policy landscape.  As the title states, now it seems as if the industry is riding on the Healthcare Polar Express; head first into the dark, cold, snowy north.

  • Fiscal Cliff: Wow, what a mess.  The House has adjourned for the Christmas holiday, leaving the Senate to try to fashion a compromise bill.  The key players, namely Speaker Boehner and President Obama are at impasse.  As I write, the market has dropped by 120 points.  Aside from the tax issues unresolved, the bigger implications of “no deal” are the pending Medicare Part B cuts of 26% (physician payments, outpatient payments tied to the Sustainable Growth Rate formula), sequestration cuts for Medicare of 2%, and a series of PPACA related provisions that raise Medicare premiums and apply new provider taxes on insurance companies/insurance plans.  While it is possible that a temporary deal gets one, buying once again a brief reprieve, the tone of settlement of the big issues is alarming.  What’s worse is the imbedded economic impact of “no deal” or a “marginalized” deal.  Recall, Medicare and Medicaid funding is primarily tied to taxes; payroll and income. I am most alarmed at the implication for Medicaid as any further erosion in economic recovery will put states in a real fiscal vice.  Nationalized signs of recovery are just that, nationalized.  Important for state budgets and Medicaid is an expansion of GDP growth fertile enough to expand into local, regional and state economies.  Right now, a meager 2% GDP growth is akin to treading water for most states.  Slower growth or a recession is disastrous as Medicaid ranks are already swollen with chronically unemployed and underemployed individuals.
  • Medicare and SNFs: On the heels of last year’s outlay reduction and rate cuts (10%), sequestration cuts set to occur without a Fiscal Cliff compromise add an additional 2% reduction. Making matters worse are two recently released reports from Medpac and the GAO respectively. In November, the GAO reported that 23% of all Medicare SNF claims are fraudulent (upcoding, care billed for and not provided, etc.).  Important to note, the GAO review focused on claims from 2009, prior to changes imputed under RUGs IV.  Arguably, the current environment is still somewhat ripe with fraudulent claims but my guess is that the GAO is mixing “apples with oranges” in some of its conclusions.  The simple fact is that the RUGs III environment and rules gave providers very wide berth via the use of look back provisions, the methodology for minute counting (group minutes divided in whole treatments versus fractional), etc. Earlier in the month, Medpac recommended elimination of the 2013 market basket for SNFs accompanied by a plan to rebase rates for 2014 imbedding an initial 4% payment reduction. Medpac’s conclusion is derived somewhat from data drawn from the GAO but moreover, from reviews of cost reports, etc. that continue to imply fairly substantial Medicare margins for SNFs.  Medpac’s reasoning for rebasing is to bring payments more in-line with provider costs (down).  The difficulty in making sense of this argument for the industry is that the industry still survives by cost and revenue shifting as the dominant payer source for the vast majority of SNFs is Medicaid; historically a payer that creates a negative margin.  Regardless of the track Congress takes, the overall implication is a future with downward rate trend.  The industry faces difficult haggling positions given the GAO’s report – tough to argue that rates should remain high when there is a 20 plus percent fraud over-hang.
  • Lame Duck Watch: If the Fiscal Cliff issues aren’t enough to feel like “coal in the stocking”, consider that this is also Lame Duck time in the House and the Senate.  Lame Duck watch means simply this: Don’t ignore the series of bills and riders to spending continuation legislation proffered by Lame Duck Senators and Congressmen.  A classic case is a bill supported by Lame Duck Senator Kohl known as the Painkiller Bill.  Kohl first introduced this bill in 2011 and it went nowhere.  Its back.  The bill on the surface seems reasonable, offering an easier methodology for physicians to provide oral orders for opiates and other pain killers for SNF residents.  The objective is to provide more rapid response to patients with chronic and break-through pain. Alas, as is customary with legislative manipulation of this sort, the bill is loaded with potholes that would dramatically increase record-keeping requirements for pain medication administration and impart fines (significant) and penalties including prison time for compliance failure or diversion.  Simply put, this should be a non-starter.  The issue isn’t to create a different path but to establish a different systemic methodology that would allow the use and encourage with grant funding, automated dispensing.  Hospitals have used this system for years but as of today, CMS still requires “unit dose” per resident for SNF patients.  With automated dispensing, the delay in care issues are significantly controlled as is the likelihood of diversion as the systems have multiple fail-safes for access and distribution of controlled substances such as opiates.
  • Hospital Quality Payment Program: On Thursday, CMS released a schedule of bonuses and penalties for 3,000 hospitals tied to quality of care provided by standard as well as patient experience.  The nearly $1 billion in payment revisions will begin in January. The approach or program is known as Value Based Purchasing, incorporating 12 measures of timely and effective clinical care. Examples include the percentage of heart attack patients given anti-coagulants within 30 minutes of arrival at the hospital, the percent of pneumonia patients cultured before started on anti-biotic therapy, and the percent of surgical patients that received an antibiotic within an hour of surgery.  In addition, 8 surveyed measures on quality of service were incorporated.  Examples include how well doctors communicated with patients, how well nurses communicated with patients and how responsive hospital staff was to patient needs.  Any reader interested in knowing all 12 clinical measures and the 8 quality of service measures, drop me an e-mail (contact on the Author page) or comment to this post. I also have information on possible upcoming additions to the program as well as a series of charts and accompanying data on hospital performance.  Nationally, 52% of hospitals will receive positive adjustments and 48% negative or payment reductions.  The best performing state in terms of percentage of hospitals receiving a bonus is Maine (79%) with an average adjustment of .23%.  The worst performing state, if you can call it that, was Washington D.C. with 0 or no hospitals receiving a bonus.

To all my readers, Happy Holidays and best wishes for a prosperous, healthy and safe New Year!

December 21, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , | Leave a comment

What’sTrending: A Tad Late

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

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

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

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

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

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

My Fall Out issues for the past week are;

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

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

Medicare Doc Fix Redux

The failure of the Super Committee to achieve any measure of “go forward” spending reform left unresolved, a whole host of Medicare program spending messes, many of which will rear their ugly heads come January 1.  While many lament the Committee’s failure to resolve equitably, what is set to become automatic cuts, the truth of the matter is that the automatic cuts are literally far-off (politically speaking) and unlikely to occur as specified by current law.  More problematic at current are issues such as the continuing (sad) saga of the Medicare Physician Fee Schedule.  Recall that for the literally the past years, Congress has employed a series of stop-gap legislative measures staving off cuts to the fee schedule.  The latest legislative band-aid will expire on December 31 and if not again patched, cuts of 27.4% are set to occur.  Additionally, the same formulaic mess that calls for the reduction in physician payments rolls through to other certain providers such as outpatient therapies (Physical, Occupational, and Speech) inclusive of the reinstitution of a hard cap of $1,800 on outpatient therapy charges.

For readers somewhat unfamiliar with the “devil in the details” of this issue, here’s a brief summary.  The current system, based on a formulaic provision known as the SGR (Sustainable Growth Rate) enacted in 1997 as part of the Balanced Budget Act.  The purpose of the SGR is to constrain the rate of expenditure growth under Medicare for fee schedule related services (physicians being the most prevalent).  Under this system, spending is constrained by annual GDP growth, growth in the number of Medicare beneficiaries, inflation in practice costs for physicians and other outpatient providers, and spending required by regulation or law.  Weighting these four factors leads to a change (plus or minus) in the schedule of payments that is fundamentally influenced by economic activity or more precisely, changes in GDP.  In simplest terms, if spending in any one year exceeds GDP growth for the same period, the formula looks to reign in spending via cuts in future years.  As volume is a contributor as is inflation in practice related costs, the issue becomes somewhat of a ratio analysis; the rate of change in one is offset somewhat by the rate of change in the other or others.

In the earliest years of implementation, GDP growth was healthier than programmatic outlays (the target).  The net result until 2001 was a series of fee schedule increases, often at rates greater than inflation for the affected year.  Since 2001, expenditures have exceeded the growth target (fundamentally GDP growth) and the formula has triggered cuts.  With  the exception of 2002, Congress has acted to override the required cuts.  Each action by Congress, up to 2007, produced a growing negative balance under the SGR methodology, leading to the current forecast of required reductions equalling 27.4%.  Given the requirements under current law and the SGR, forecasts for 2013 and 2014 foreshadow additional cuts.

Logical and illogical arguments abound as to why the system has failed so dramatically; perhaps most logical is that payment discussions  (increases and decreases) correlate with beneficiary access.  Illogical is that payment reductions impacting certain specialties would lead to wholesale access problems for heart procedures, neuro procedures, etc. Most acutely impacted would be primary care access, already a significant problem in rural and distinct urban areas.  Additionally, access to other fee schedule providers such as outpatient therapies would certainly be negatively impacted.  In the end, Congress has proven unwilling to allow cuts of the current magnitude to roll forward.

As January 1 is rapidly approaching, here’s my insight into what happens next.  First the backdrop of reality.  This issue is square on the tables of the group (Congress) that proved incapable of finding $1.2 trillion in deficit reduction over ten years.  Being honest, finding $1.2 trillion over ten years is akin to finding apples on the ground in large orchard; this isn’t even low-hanging fruit.  Further, this is an election year issue during a period where the economy is stuck in near-neutral.  Finally, political cover is scarce and the back and forth rhetoric is furious; tough to find cooler heads.  The best that will come forward is a quick D.C. two-step; a patch to resolve the immediate fear of cuts followed by other patches that serve the same purpose but in pieces, appear small while continuing the saga of an aggregate amount of dollars that simply, won’t go away.  In as much as it is time or has been time long past, to fix this issue, nothing immediate will occur of this sort.  For providers, more nail chewing for Christmas.

December 5, 2011 Posted by | Policy and Politics - Federal | , , , , , , , | 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

The Unraveling of the PPACA

OK readers and requesters, I haven’t gone, as Robert Frost wrote, into the “woods lovely, dark and deep” but I have been preoccupied by work and things familial.  Sadly, energy wanes as one focuses intently on the delicate balance that is juggling a frenetic work schedule, a mile of other professional commitments, travel, and family.  Returning slowly to regularity in life will allow me to re-connect and be once again, more “informationally” fluid.

A major emphasis of my work has been translating health policy into actionable strategies for clients.  Some efforts are rather profound and deep and others are rather functional and tactile.  The latter was the case with the Medicare RUGs III, MDS 3.0, RUGs Hybrid, RUGs IV debacle, partially created by the PPACA and partially due to the lack of foresight on the part of Congress.  In the end, this mess evolved to where it should have been all along – a grouper and an assessment tool that actually matched.  Today, we are simply left gazing forward at what might be once CMS figures out how the RUGs IV payments are flowing and whether providers are using the system correctly.  I fully expect CMS, as they historically have, to go through a series of gyrations to fine tune the payment categories, equating the new system to that which was originally intended – something that is expense neutral (or close to) for the Medicare program.  History being what it is (a reasonably good predictor of future behavior), we saw and lived through a similar dance with previous PPS system versions.

Turning to the title of this post and topically, a question(s) I am asked all too often: What can we expect or not expect to happen next under the current phase-in process of the PPACA?  Following the law as written would provide an answer but clearly, the law as written is unraveling as we move seemingly, day by day.  Consider the following events of recent weeks/months.

  • A power-shift in Congress overloaded the House with Republicans and structurally, fiscal conservatives that swept into the majority on a platform of “anti-health care reform and anti-deficit spending”.  As the House fundamentally controls the majority of appropriations and budget policy, funding barriers to continue the roll-out of the PPACA are certain.
  • Over 1,000 waivers to certain elements of the PPACA have been granted, with more forthcoming, principally targeted at giving insurers, major corporations (multi-state businesses) and recently, labor unions relief from the mandated coverage limits imposed under the law.  Secondarily, states have sought relief from various Medicaid provisions that came part and parcel with the enhanced FMAP provided under the Stimulus bill (corollary to additional elements required under th PPACA).  From some vantage points, Medicaid may be the 10 ton gorilla in the room when all is said and done regarding the future of the PPACA.
  • A series of court cases and resulting decisions have established the framework of a constitutional challenge to the law.  Opinions/decisions affirming constitutionality were rendered by Democratic judicial appointees and opinions/decisions affirming unconstitutionally rendered by Republican judicial appointees.  Clearly, the matter of constitutionality of the key requirement of universal insurance purchase/participation for every American will be settled only by the Supreme Court.  The remaining question is “when”. If the key provision of universal (everyone must) purchase/participation is found unconstitutional, the PPACA is functionally dead.
  • Within the past week or so, Secretary Sebelius of HHS publicly went on the “record” in Congressional committee testimony that the financing of the PPACA included effective double-use (double counting) of the projected $500 billion in Medicare savings that is projected within the law.  This, while newsworthy, is not news to anyone who read the CBO scoring, read earlier testimony from Medicare’s Chief Actuary, or fundamentally, could follow basic arithmetic logic and principles.  The Medicare savings argument was flawed when first proffered on so many levels.  First, the savings was phantom money in so much that it required Congress to sustain actual rate cuts while relying on finding and stopping “fraud and abuse” thereby creating savings.  If in fact, the fraud and abuse savings were or are known, a 2,000 page piece of legislation surely wasn’t necessary to end the fraudulent and abusive practices (the same being already illegal) and render the savings.  Similarly, Congress has no known history of sustaining meaningful spending controls on entitlements, particularly Medicare.  Finally, the physician fee-schedule fix was never incorporated into the PPACA or its financial projections regarding Medicare spending – this tally alone evaporates all if not the majority of the projected savings.  Suffice to say, in order to net $500 billion in Medicare savings as foretold by the PPACA and its proponents, a perfect storm unlike any ever seen in Washington would need to occur, not to mention a real current spending reduction of close to $900 billion (adding in the Medicare physician fee schedule “fix” costs of approximately $400 billion as unaccounted spending, netted against the savings to achieve a net savings of $500 billion).  For those who would argue that the physician fee schedule fix won’t cost $400 billion, I humbly reply “do the math”.  Congress continues to avoid this issue in real time by creating temporary patches as the real numbers inclusive of a formulaic change in the law (change away from the sustainable growth algorithm) that prevents significant fee schedule cuts for physicians will require approximately $300 billion in “new” spending.  Add another $100 billion or so for the programs such as outpatient therapies that are tied to the fee schedule and $400 billion is conservatively, a solid figure.  The double-counting occurs as a result of creating the phony $500 billion and using the “dollars” to create new benefits and expanded eligibility levels and programs within the PPACA (primarily Medicaid expansion).  The costs of these new benefits greatly exceeds $500 billion in reality and thus, no savings will occur.
  • President Obama during a speech at the National Governor’s Association publicly announced his willingness to offer states greater flexibility and an accelerated date to file alternative plans to meet the PPACA requirements pertaining to exchanges and Medicaid expansion.  In effect, President Obama stated that the law was still a “work in progress” and states could devise their own alternatives, provided the alternatives were as comprehensive and provided the same level of benefits as required under the PPACA.  Until this revelation, states were operating under the premise that PPACA requirements dictating how Medicaid expansion would work, the exchange plan mandates for coverages, etc. were immovable objects, at least until 2014 by when, each state would have incurred enormous costs associated with implementation.  The conclusion: More unraveling about to occur.
  • Arizona became the first state in what promises to be a growing list, to apply to the federal government for a waiver allowing 300,000 people to be removed from its Medicaid program (disenrolled).  Arizona, like multiple states, saw its Medicaid enrollment explode due to the economic recession and provisions within the Stimulus Bill which provided enhanced Medicaid matches conditioned upon the creation of certain new programs of benefits and coverages under Medicaid.  The “rub” today is the sunset date of June 30 which ends the enhanced Medicaid funding.  By law, the money goes away but the programs and benefits it funded must be maintained by the state; hence, the need for a waiver. The evaporating Medicaid enhancement exposes the enormity of state Medicaid and other budget deficits – in Arizona, $1.1 billion total deficit and potential savings of $541 million if the waiver is granted (fully half of the state’s deficit).  From a PPACA perspective, the next move in Washington regarding a request such as that from Arizona will be fascinating.  A core element within reform used to achieve the coverage objectives is an expansion of Medicaid.  A waiver granted to Arizona is a virtual submission on the part of Washington that state Medicaid plans and budgets are incapable of meeting the financial requirements concurrent with expansion, absent significant cash infusions from Washington (not wholly provided with the PPACA).  For those of us who closely follow health policy, we’ve warned loudly and frequently that Medicaid as presently configured, is the worst vehicle to use to expand coverage.  The PPACA did nothing to alter the maniacal constructs of Medicaid, its funding, and its bureaucratic programmatic tenets.  It further did nothing to allocate sufficient resources to the states to support expansion thus leaving states to bear an enormous primarily unfunded mandate within their existing and growing, bankrupt Medicaid programs.  Aside from a Supreme Court ruling finding the PPACA universal participation/purchase requirements unconstitutional, the Medicaid issues are a strong and close second that could cause the PPACA to completely unravel.

The above notwithstanding, the PPACA gives us a glimpse into the future of health policy and ultimately, health care financing and delivery in the U.S.  Regardless of whether the law survives in whole or in part, certain elements I believe, are new realities and I have counseled clients to begin to plan accordingly.

  • Money is an issue and the goal of the PPACA while inherently flawed in the form finished, was to slow the growth of entitlement spending and “bend the cost curve”.  This need or goal is pressing for the U.S. as entitlement spending cannot be sustained at is present level.  This simply means that Medicare and Medicaid are fundamentally and completely exhausted (financially and programmatically).  Regardless of form and resultant policy, reimbursement levels will remain fundamentally flat to trending down – no other way for them to go unless new tax revenues are allocated to each program (not feasible).  Kicking the issue down the road as Washington and states have done is no longer an option as the “road” has ended or its end is clearly in sight.  The best providers can hope for is flat reimbursement with a recognition on the part of legislators that greater flexibility from overbearing regulations is needed to help offset the revenue loss (if I can’t pay you more I can at least make it cheaper for you to operate).
  • Greater emphasis will be placed on finding and eliminating waste and fraud – already happening but ramped up to an even higher level.  Realize that Medicaid and Medicare are self-wasting disasters by design in terms of how modern health care is delivered and financed but vigilance and enforcement is feel-good activity; results often are minimal in comparison to costs to obtain the results.  Providers thus will contend with more questions, more rules for disclosure, more reporting, more probes and more audits.  Clearly, the costs borne by providers to monitor and justify their billing practices to Medicare and Medicaid will rise.
  • Infrastructure investments in terms of technology will rise as providers will need to justify more directly, their care vs. their bills.  Simultaneous (or at least proximal), PPACA provisions and other federal provisions regarding privacy, electronic billing, health information exchanges, etc., will not evaporate entirely.  Providers will need to be able to communicate across functions and across related and unrelated provider organizations, patient information, quality measures, and care information (treatments plans, history, orders, etc.).
  • Terms and concepts brought forth under the PPACA such as Accountable Care Organizations, Competitive Bidding and Bundled Payments are here to stay, regardless of the life or death of the PPACA.  They make too much sense intuitively even if the same translates poorly in federal policy.  Organizations that take the “conceptual elements and goals” of things like Accountable Care Organizations and begin to develop programs and structural changes in “how” they do business will be far better off than those who believe that these concepts will die as the PPACA continues to unravel.  A future where reimbursement is more closely tied to outcomes and penalties for events such as avoidable re-hospitalization, repeat hospitalizations, avoidable institutional infections, etc. is virtually certain.
  • A renewed focus on primary and community based medical care, prevention, and chronic care management is forthcoming – soon.  Philosophically, although wrongly implemented and structured, the PPACA was Washington’s politicized attempt to create this focus.  There is solid logic behind such a focus as diminution in each of these areas (or in some cases, failure to fully launch) directly correlate to rapidly rising health costs (and correspondingly high rates of expensive, preventable chronic illness such as diabetes, obesity, heart disease, etc.).  Even Washington knows that ultimately, funding and enhanced payment for better primary, community and chronic disease care is necessary and smart.  The problem is, as has always been the case with policy elements measured in the billions or trillions of expenditures, politics gets in the way of functionality – hence the PPACA.

March 9, 2011 Posted by | Policy and Politics - Federal | , , , , , , , , , , | Leave a comment

House Passes Jobs Bill Containing Enhanced FMAP

On a party line vote, the House of Representatives passed legislation euphemistically coined the “jobs bill”.  The $26 billion dollar legislation includes a $10 billion appropriation for state school budgets and $16 billion to continued the enhanced FMAP (Medicaid match) provided under the ARRA (Stimulus bill), set to expire on December 31.  The vote was 247 to 161.  The appropriation for continuation of the enhanced FMAP extends the additional Stimulus funding through June 30, 2011.

Key supporters of passage of the bill were teacher’s union and other municipal unions who claimed that without the additional funding ($10 billion), job losses via layoffs were certain.  Detractors of the bill claim that the $10 billion, once divided among 50 states, is hardly adequate to offer much financial relief.  In fact, the original version of the bill provided for more than double the funding but deficit hawks in both houses offered sufficient resistance to carve the amount to $10 billion.  Interesting as well is the fact that some $30 billion provided under the ARRA remains unspent for education support.

Supporter of continuation of the enhanced FMAP included SNF and long-term care trade associations as well as the National Governor’s Association.  Their claim is that without continuation of additional Medicaid match funding, state Medicaid budgets, already structurally broke, would reel instantaneously, causing necessary cuts in benefits and provider reimbursements.  Detractors point out that the economy is unlikely to recover fast enough and certainly, not sufficient by mid-year 2011 to avoid the need for either additional federal funding support or substantial budget cuts.

The President is expected to sign the bill quickly, using the ceremony to reinforce the Administration’s claim that the funding was necessary to preserve key governmental infrastructure jobs.  Republican detractors will no doubt continue to rail against the bill’s passage claiming that is another de facto bail-out and the bill’s tax increases will hurt the already flagging economic recovery.

August 10, 2010 Posted by | Policy and Politics - Federal | , , , , , , , , | Leave a comment

Enhanced FMAP Funding Moving Through the Senate

On December 31st of this year, enhancements made to the Medicaid FMAP (Federal matching dollars) via the ARRA (Stimulus or American Recovery and Reinvestment Act) are set to evaporate.  In a series of bills and other legislative initiatives throughout the spring and early summer, Congress has failed to extend funding to prevent the evaporation of the additional FMAP funding.  See my related posts below for more information on Medicaid, the FMAP provisions, and the legislative activity to extend the enhanced match provided under the ARRA.

Yesterday, on a procedural vote to end debate in the Senate, another version of a “jobs” bill containing a slimmed down extension of the enhanced FMAP crept forward.  The vote to end debate and send the bill forward for a final vote was 61-38.  With such a definitive margin in support of a vote, it is all but certain the bill will pass on a final vote.  The measure then must go to the House, presently in recess, where it will be either voted upon “as is” or modified and returned to the Senate.  Speaker Pelosi has indicated that she will call the House back to session in order to produce a final bill for President Obama’s signature, prior to the re-opening of schools in late August/early September.

The bill provides $26 billion in additional funding with $10 billion targeted toward education and public service employment and $16 billion for extension of the enhanced FMAP.  The $10 billion is designed to prevent the lay-offs of teachers, firefighters, police and other municipal service worker jobs that are purportedly “at-risk” once continued funding provided in the ARRA evaporates.  Communities, states, and civil service employee unions have been pressuring Congress to extend some levels of Stimulus funding, claiming that without additional dollars, budget cuts would cause lay-offs of key positions such as teachers.  Republicans have effectively stalled previous legislative attempts to extend additional funding claiming that the dollars will add to the deficit and are effectively federal bail-outs for the teacher’s union and other municipal service employee unions.  In this round, Senate Majority Leader Reid brought forth additional cuts in other programs plus tax increases to generate a revenue offset to the new spending.  The resultant funding shift caused Republicans Snowe and Collins to vote in favor of ending debate (a show of support for the bill).

The $16 billion targeted toward additional Medicaid funding was heavily lobbied for by states and health care trade associations as critical to prevent reimbursement cuts and benefit reductions for seniors, the poor and the disabled.  With 48 out of 50 states having moderate to severe budget deficits and current Medicaid structural deficits, loss of the enhanced match would necessitate programmatic cuts.  In some cases, states that were in a July 1 fiscal year budget process and/or December 31 fiscal year budget process already installed programmatic cuts and reimbursement changes as the timing of their budgets required an assumption of lost Medicaid funding coming at the end of the year. 

While the probability of an extension to the additional FMAP provided under the ARRA appears strong, the House must still approve the bill prior to the funding becoming an actuality.  The timing will clearly assist most states but in some cases, a portion of the cuts already enacted in certain states will remain.  Additionally, the added funding is not without an early 2011 sunset date or in other words, the $16 billion is only a temporary “stay” of execution for state Medicaid budget problems.  In all likelihood, unless Congress consistently re-ups with more funding for continued FMAP support, states will need to significantly restructure their Medicaid programs over the next twelve to eighteen months in order to maintain basic solvency.  With the economy still in a very slow recovery mode, most states won’t see economic growth and resulting revenues from taxes sufficient over the next year to avoid cuts in their Medicaid programs.

August 5, 2010 Posted by | Policy and Politics - Federal | , , , , , , , | Leave a comment

Medicaid Expansion and the PPACA

Article I wrote for the National Healthcare Reform Magazine on the implications for Medicaid as a result of the expansion provisions under the health care reform law. Click on the link below (or copy and paste) to view the article.

July 13, 2010 Posted by | Uncategorized | , , , , , , , | 2 Comments

Wisconsin’s Newest Triple Tax

Yesterday, Governor Jim Doyle signed AB 75 (now Act 28) otherwise known as the Wisconsin Budget Bill, inclusive of 81 vetoes unlikely to be overridden in the Assembly.  Amid fanfare and small accolades for passing “on time” (today is the deadline) a new budget, is the harsh reality that this budget kicks off a new era in Wisconsin tax policy.  For the first time in Wisconsin’s history, residents will experience a triple taxation in the form of  their healthcare and of course, the inevitable result of higher healthcare costs.  Wisconsin to date was not widely known as a “low cost” healthcare state and thanks to this budget, will keep that “booby” prize designation for some time to come.

If per chance, you have read my other posts regarding the Medicaid shell game that is perpetrated during budget preparations, you will have an inkling as to how Wisconsin tax payers and healthcare consumers just got triple shafted by this budget.  In the final analysis and “budget”, the gouging occurred in plain sight and to my dismay, without too much opposition from consumers, providers, or politicians.  In plain language, here is what just occurred.

  • Under the guise of capturing additional Federal matching dollars, the budget jacks-up the nursing home bed tax from $75 to $150 immediately (tomorrow) and then again, by another $20 next year.   Unless you believe in Peter Pan, the Tooth Fairy and the Easter Bunny (Santa Claus is off limits of course), you know that this tax will be passed on to residents capable of paying privately for their room and board.  As the tax occurs on every licensed bed, providers with the greatest census comprised of private paying residents will feel a disproportionate share of this tax “pain” as they are forced to pass it along to their residents and the resulting Medicaid rate increase of 2% will fall woefully short of making up the “paid in” difference versus the “receipt” difference via the rate increase.  Conclusion: Nursing home residents see their costs go up and providers see their costs go up – strike one.
  • Nursing homes in this budget are not alone as hospitals now fall under the spell of the “shell game”.  With this budget, hospitals now will pay a “revenue” based tax, again under the guise of attracting Federal matching dollars to bolster Medicaid reimbursement.  Similar to the repeat dilemma that nursing homes experience, hospitals will quickly realize that the tax that they pay in plus the added Federal match doesn’t quite translate dollar for dollar into reimbursement improvement.  In actuality, the sleight of hand legislature and the Governor will “sift” a few million here and there from this new “pot”, moving it hither and yonder to balance other “bloated and unfunded” elements of the State budget.  And of course, like in the nursing home scenario, hospitals will pass this tax on to their paying customers thereby inflating the costs of hospital based healthcare for each and every resident in Wisconsin that carries insurance or pays for their care privately. Conclusion: Hospital care just got more expensive and that expense will be passed on via insurance rates and costs of care to anyone who can afford to pay – strike two.
  • The final leg of the tripartite tax stool is perhaps the toughest to understand for most people and the least direct.  This leg is the Federal stimulus and matching funds leg that is referenced as the source to be tapped via raising the nursing home bed tax and creating the new hospital tax.  Simply stated, to understand this leg is to understand that Washington and the Feds have no money that did not already come in the form of taxes paid.  In other words, the money being used to match the nursing home and hospital taxes is taxes already paid by individuals and business in Wisconsin.  The cruel irony is that we will be paying new taxes for nursing home beds and hospital care that will be used to return taxes already paid and in exchange, receive the reward of higher cost healthcare.  Even more bizarre is the fact that the taxes once paid to the Feds and theoretically returned via a match with the new healthcare taxes, will be skimmed by the Legislature and Governor for uses other than for which they were taken in the first place; clearly not for lowering the cost of healthcare.  Conclusion: The Feds never had any new source of money and never will save the taxes already paid by taxpayers – strike three.

I leave you with a simple economic lesson tied directly to this subject – Governments are not sources of money, people and businesses are sources of money and ultimately, people are truly the only source.  In a climate where healthcare is already too expensive and the economy is lack-luster at best, raising taxes via healthcare in any fashion to theoretically redistribute dollars from another source is simply bad economic policy.  There is absolutely no chance in this scheme for the healthcare consumer or for providers for that matter, to come out ahead and sadly, their loss will come at the expense of all tax paying citizens and businesses in the State.

June 30, 2009 Posted by | Policy and Politics - Wisconsin | , , , , , | Leave a comment