Join me as I host a one-hour webinar and conference call regarding post-election healthcare policy. The program/call is set for Wednesday, December 14 at 1:00 PM EST/noon CST.
With uncertainty looming, providers are wondering what will change as the Inauguration approaches and a new Congress settles in. We will review the ACA, Medicaid and Medicare, and related policy issues including;
- Value Based Purchasing
- CMS Center for Innovation/Alternative Delivery Models/Bundled Payments
- Additional Quality Measures and Quality Reporting
- Inter-Program and Payment Reform – Rate Equalization for Post-Acute Providers
- IMPACT Act
- ACO Expansion
The program is sponsored by HCPro and the registration link is below;
We knew that sooner or later, the first Tuesday in November would arrive and with that, a new President and changes (many or few) to Congress. The outcome certain, we move to uncertainty again concerning “what next”?…or as applicable here, what next from a health policy perspective.
With Donald Trump the incoming President-Elect, only so much from a policy perspective is known. Hillary Clinton’s path was easier to divine from a “what next” perspective as fundamentally, status quo was the overall direction. Trump’s likely direction and thus, changes to current policy, etc. are hazy at best. Thematically, there are points offered throughout the campaign that give some guidance. Unfortunately, much that drives current reality for providers is more regulatory begat by legislative policy than policy de novo.
Without divining too much from rhetoric, here’s what I think, from a health policy perspective, is what to expect from a Trump Administration.
- ObamaCare: Trump ran on a theme of “repeal and replace” ObamaCare aka the Affordable Care Act. This concept however, needs trimming. Repealing in total, existing federal law the magnitude of the ACA is difficult if not nearly impossible, especially since implementation of various provisions is well down the road. The ACA and its step-child regulations are tens of thousands of pages. Additionally, even with a Republican White House and Republican-majority Congress, the Congressional numbers (seats held) are not enough to avoid Democratic Senate maneuvers including filibuster(s). This means that the real targets for “repeal and replace” are the insurance aspects namely the individual mandate, Medicaid expansion, certain insurance mandates, the insurance exchanges, a likely the current subsidy structure(s). The other elements in the law, found in Title III – Improving the Quality and Efficiency of Health Care, will remain (my prediction) – too difficult to unwind and not really germane to the “campaign” promise. This Section (though not exclusively) contains a slew of provisions to “modernize” Medicare (e.g., value-based purchasing, physician quality reporting, hospice, rehab hospital and LTACH quality reporting, various payment adjustments, etc.). Similarly, I see little change made, if any to, large sections of Title II involving Medicaid and Title IV involving Chronic Disease. Bottom line: The ACA is enormous today, nearly fully intertwined in the U.S. health care landscape and as such, too complex to “wholesale” eliminate and replace. For readers interested in exploring these sections (and others) of the ACA, a link to the ObamaCare website is here http://obamacarefacts.com/summary-of-provisions-patient-protection-and-affordable-care-act/
- Medicaid: The implications for Medicaid are a bit fuzzier as Trump’s goals or pledges span two distinct elements of the program. First, Trump’s plan to re-shape ObamaCare (repeal, etc.) would eliminate Medicaid expansion. As mentioned in number 1 prior, this is a small part of the ACA but a lipid test for Republican governors, especially in states that did not embrace expansion (e.g, Wisconsin, Kansas, etc.). Second, Trump has said that he embraces Medicaid block-grant funding and greater state autonomy for Medicaid programmatic changes (less reliance on the need for states to gain waivers for coverage design, program expansion, etc.). It is this element that is vague. A series of questions arise pertaining to “policy” at the federal level versus funding as block grants are the latter. The dominant concern is that in all scenarios, the amount of money “granted” to the states will be less than current allocations and won’t come with any matching incentives. With elimination of the expansion elements, how a transition plan of coverage and care will occur is a mystery – federal assistance? state funding mostly? What I do predict is that Medicaid will only suffer the setback of a restructure and replacement of the Medicaid expansion elements under the ACA. I don’t see block grants happening any time soon as even Republican governors are opposed without a plan for wholesale Medicaid programmatic reform. Regardless of the approach, some initial Medicaid changes are in the offing, separate from the Block Grant issue. The Medicaid Expansion issue is no doubt, a target in the “repeal and replace Obama Care”. The trick however is to account for the large number of individuals that gained coverage via expansion (via eligibility increases due to increased poverty limits) – approximately 8 million impacted. This is less about “repeal” and more about “replace” to offset coverage lapse(s) for this group.
- Related Health Policy/ACA Issues: As I mentioned earlier, the ACA/ObamaCare is an enormous law with tentacles now woven throughout the health care industry. The Repeal and Replace issues aren’t as “clean” as one would think. The focus is the insurance mandate, the subsidies, the mandated coverage issues and to a lesser extent, Medicaid. That leaves fully 80% of the ACA intact including a series of policy changes and initiatives that providers wrestle with daily. These issues are unlikely to change in any substantive form. Republicans support alternative delivery projects, value based purchasing, etc. as much if not more than Democrats. Additionally, to repeal is to open a Pandora’s Box of agency regulations that tie to reimbursement, tie to other regulations, etc. For SNFs alone, there exists all sorts of overlap between Value Based Purchasing, Bundled Payments, new Quality Measures and quality reporting (see my post/presentation on this site regarding Post-Acute Regulatory Changes). The list below is not exhaustive but representative.
- Value Based Purchasing
- CMS Center for Innovation/Alternative Delivery Models/Bundled Payments
- Additional Quality Measures and Quality Reporting
- Inter-Program and Payment Reform – Rate Equalization for Post-Acute Providers
- IMPACT Act
- ACO Expansion
As providers watch the inauguration approach and a new Congress settle in, the wonder is around change. Specifically, what will change. My answer – bet on nothing substantive in the short-run. While Mr. Trump ran partially on a platform that included regulatory reduction/simplification, the lack of overall specifics regarding “which or what” regulations on the health care front are targets leaves us guessing. My guess is none, anytime soon.
The Trump focus will be on campaign specific agenda first: ObamaCare, Immigration, Taxation, Foreign Trade, Energy, etc. – not health policy per se. There is some flow-through gains providers can anticipate down-the-road that can be gleaned from the Trump campaign but these are a year or more off. If Trump does deal with some simplification on drug and research regulation (faster, cheaper, quicker approvals), funding for disease management and tele-medicine and a fast-track of some Republican policy “likes” such as Medicare simplification, Medicaid reform at the program level, and corporate tax reduction (will help for-profit providers), then gains will occur or opportunities for gains will occur.
From a strategic and preparatory perspective, stay the course. Providers should be working on improved quality outcomes, reducing avoidable care transitions/readmissions, looking at narrow networks and network contracting/development opportunities and finding ways to reduce cost and improve care outcomes. Regardless of what a Trump Administration does first, the aforementioned work is necessary as payment for value, bundles/episodes of care, and focus on quality measures and outcomes is here to stay and to stay for the foreseeable future.
Yesterday, the Speaker of the House (John Boehner) announced that a compromise is forthcoming to alleviate, for one year, the pending 24% payment reduction to the Physician Fee Schedule arising out of the current SGR formula. Ten days or so ago I wrote a post regarding a House bill that repealed the SGR but contained a “poison-pill” provision assuring its death in the Senate ( http://wp.me/ptUlY-gm ). As is the common methodology in Congress today, this initiative is a “patch”; another extension of the current status quo, delaying any SGR implications for one year. Alas, while the SGR demands fixing, permanently, no traction is available among the parties to resolve the issue.
What the compromise does and doesn’t do is as much the center of debate as any efforts to replace the SGR with a more permanent formula. In summary, the compromise;
- Staves off the 24% cut but doesn’t restore any cuts related to sequestration.
- It delays the implementation for hospitals of the 2 midnight rule for another six months. The 2 midnight rule essentially reduces Medicare payments to hospitals for short in-patient stays. It requires admitting physicians to have justification for the inpatient stay and if the same is lacking, the stay could be deemed (by RAC auditors) outpatient observation and thus, paid under Part B at a lower rate. The Bill would delay RAC auditors ability to review such stays until March of 2015 and give CMS authority in the interim and beyond, the ability to probe and educate but not re-classify stays.
- It extends the implementation of ICD-10 for one more year.
- It extends certain programs that provide additional funding for rural hospitals.
While no one wins under these compromises, the Patch is likely to pass both houses quickly, viewed as a better alternative than the SGR cuts. For post-acute providers, this is good enough news as the therapy fee schedule was subject to the same 24% reduction.
Interesting to note is that while the Bill extends the implementation of the 2 midnight rule, it doesn’t address the backlog of Administrative Appeals that continues to mount due to the Medicare RAC initiative. This backlog is enormous and growing and it is the sole source initially, for providers to appeal RAC decisions. I know of multiple providers today in the appeal queue waiting for a review of what appears to be, many erroneous determinations and shabby reviews of claims. More on this in another post – later.
Earlier today, the House passed a bill that repeals the SGR formula used to derive physician reimbursement under Medicare. For more specifics on the SGR, see a previous post I wrote at http://wp.me/ptUlY-ae . The legislation is title SGR Repeal and Medicare Payment Modernization Act.
Unfortunately, the fate of the legislation is predestined as the bill includes an amendment from the Ways and Means Chairman (Rep. Dave Camp) that delays implementation of the tax/fee penalties concurrent with the Individual Mandate. It does not repeal or delay the mandate, simply the punitive measures for those that don’t comply. Recall, the Affordable Care Acts requires all individuals above a certain income limit (tax filing limit) or without expressed hardship, to obtain health insurance by April of this year or face a penalty. The penalty embedded within the act is a flat dollar floor with amounts increasing based on gross income. With certainty, the inclusion of the amendment in the legislation spells a death sentence in the Senate where Senate Democrats hold a majority and Leader Reid, controls the flow of legislation for vote. The bill will never see a vote in the Senate due to the Camp amendment.
The sticking point on repeal of the SGR is cost. The Congressional Budget Office estimates that a repeal of the SGR, shifting to an indexed option with market baskets and productivity adjustments, will cost $138 billion over 10 years. The dollars would need to come from an already shaky Medicare program that today, doesn’t really have another source of revenue save tax increases or contra-revenue infusions via reduced provider payments elsewhere in the industry. The funding dilemma that occurs with the Camp amendment is that such an amendment actually saves the government $169 billion. The savings is achieved by a projection of fewer people, sans the mandate penalty, having health insurance including under Medicaid and SCHIP (or CHIP). With fewer people accessing the government-funded entitlement programs, the outflow is less, savings in amounts greater than the SGR repeal costs.
Once again, a fascinating insight into current federal health policy and the economics at play…
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.
For readers approximating my age, a commercial slogan ties to the title of this post: “Is it real or is it Memorex”. In this current round of Washington political maneuvering and on display dysfunction lies the question; is the ACA issue real or is it a tool for political posturing? Is this a real “red line” issue and an issue of such magnitude that a simple continuing resolution for government funding now resides in limbo? Maybe yes and maybe not.
Setting aside the news cycle rhetoric and the political ideologies at-play, merit exists to slow down ACA implementation and re-calibrate. The problem is that neither party can find a way to address the process and thus, the economic and policy issues operative, without wading hip-deep into political muck. Truthfully, the ACA issue is worthy of scrutiny and thus, legislative remedy but the timing and the mechanism is not during a budget procedural process.
Dissecting the debate further, removing the fringe and getting at the core, there is logic to explore and facts to review. Non-funding the ACA is a bogus proposition and one that is all but impossible to do. It is not a stand-alone, singular expenditure like funding another aircraft carrier or a NASA mission. It is already woven throughout the health care industry. The issues that remain are whether certain elements need re-thought and arguably, many do. This isn’t a political point but one shared by most economists (non-partisan), most health policy experts, and even the party leaders on both sides of the aisle. No matter what the president’s rhetoric is at the moment, his administration delayed the employer mandate and for sound reasons. The individual mandate deserves the same fate and for the same reasons.
The simplest of all reasons is neither at present, is in workable fashion and likely won’t be anytime soon. The implementation and enforcement provisions for the requirements exist in only pieces. Further, the complexity of the mandates (individual and employer) create so many unintended consequences that each deserves a time-out and re-think to address the possible consequences. For example, the employer mandate created the real consequences of lost work hours and lost jobs – untenable outcomes in a job less recovery. With this looming outcome and a loss of or reduction in, employer-sponsored health plans the participation goals of the ACA can’t be met and worse, the numbers break ugly quick on additional government resources required to pick-up the slack via Medicaid and subsidies through the exchanges.
A similar course is visible with the individual mandate. The process is confusing and individuals simply don’t get it. While the rates look at first glance palatable the reality is, rates plus out-of-pocket costs on the affordable plans don’t equal affordable coverage. Similarly, rate subsidies are tied to tax credits not direct to income support for most (cash flow timing is markedly different with tax credits). When viewed against employer coverage options existing, the choice for most is clear – the exchanges lose. Additionally, Medicaid is full and overflowing. In a number of states that have recently moved to a Managed Medicaid platform, the transition has created problems yet unresolved in terms of payment, claims adjudication, enrollment and provider access. Adding to this mess is a certain nightmare, particularly in rural areas or inner-city areas where participating Medicaid providers (especially physicians) are limited and declining. Worse, the numbers of participants that qualify for the exchanges and ultimately participating appears by estimate, to be far below projections. If, as I believe and a number of health care economists similarly, the initial participants are folks with immediate health needs and chronic diseases, the costs via premium in year 2 will explode (too many sick people, not enough healthy people in ratio, paying premiums). Recall, anyone qualifying to purchase insurance on an exchange can do so at any time and not be denied coverage. There is no penalty to lapse in and lapse out effectively and initially, the “tax” penalty is meager – assuming some methodology of enforcement is available (one isn’t today). Reality suggests that most who are healthy and presently under or uninsured, will not jump to lower their income via purchasing insurance until doing so is proximal to an immediate need.
If the above reasons aren’t compelling enough to re-think and re-craft the key ACA components, the state of the economy is. Politics aside, the ACA is anathema to a rebuilding economy that is trying to shift to a different plane. Large, overarching legislation that is ripe with new entitlements, new taxes, new mandates, and crosses traditional state boundaries with federal intercession creates temporary economic impacts – socially and politically in the immediate, financial beyond. It is the social and political shifts that are creating a pull opposite to an economy seeking equilibrium. The fundamental drag or tug is opposite or oppositional to labor, wages, income and consumer spending. All of these elements succeeding or byproduct of industrial and business growth, capital investment, and production/service expansion. Point in fact, the ACA addresses more issues in a past or former economy than it does in the shifting current economy. Hence the flaws in the employer mandate so troubling to many employers.
What we know today of the economy is that its labor norms (employment) are fundamentally different and thus, income and consumption patterns have shifted. For example, workforce participation rates are significantly down with retirement up and at least for a decade or more, likely to remain at this trend level. The number of people working at fragmented jobs, temporary jobs and jobs below their former pay and grade has significantly increased and the increase again, is permanent not temporary. Many of the jobs lost over the course of the last five to seven years are gone permanently. Government employment is waning and will continue to do so. This labor shift combined with a wage shift can’t be resolved by government policy. The shift likewise, in employment and income status and thus, health insurance coverage isn’t adjusted by the ACA – only magnified. Again, regardless of subsidies and Medicaid expansion, the number of permanently covered individuals won’t shift dramatically and in many regions and states, will shift negatively – more uninsured and underinsured. Why? The folks fundamentally “shifted” in the current economy are working, can’t qualify for Medicaid, and regardless of access to an exchange with some or limited subsidy, can’t or won’t afford the “total” cost of coverage (premium plus out-of-pockets costs). The jobs they lost included benefits and the replacement jobs, without or at a higher cost. This is the new economic norm and the ACA, unless adjusted, is an adverse factor in the labor market recovery. Without a labor recovery, the overall recovery will languish. This is an undeniable fact and one that no political fight or government policy can alter.
An issue that continues to confound the hospital and SNF industry is the growing use and thus, referral and coverage (Medicare) ramifications of observation stays. Fundamentally, and observation stay by current definition is a non-inpatient stay – an extended residence in an outpatient status. Truly, this a bifurcated problem or issue; hospitals wishing to avoid admission and readmission penalties and SNFs trying to determine the nature of the hospital stay for Medicare coverage purposes.
The observation stay issue at hand is truly the proof of the law of unintended consequences and outgrowth of competing health policy agenda. For elderly patients and SNFs, it can be exceptionally difficult to sort out a multiple day hospital stay (greater than three days) when many of the days, or all, occurred in what appears as a private room. In fact, in many hospitals, expanded outpatient areas are easily confused as inpatient environments, with no visible delineation in accommodation, care, etc. The sole differentiating factor is whether the room and location are defined by the hospital’s license as an “inpatient room”. As Medicare coverage in an SNF requires a precluding three-day inpatient hospital stay, a stay that does not incorporate an actual admission to the hospital proper (not an outpatient admission) of at least three days in length fails to satisfy the three-day inpatient requirement.
For the hospital, observation stays (and the increase thereof) are a direct outgrowth of aggressive Medicare Recovery Audits. By deeming, via post review, inpatient stays “inappropriate or not medically necessary”, Medicare has recovered hundreds of millions of dollars from hospitals. Additionally, a growing list of admitting diagnoses (DRGs) are plaguing hospitals in terms of looming reductions in reimbursement if a patient originally admitted and subsequently discharged, is readmitted for any reason within 30 days of the discharge. To avoid this readmission penalty, hospitals will use an observation stay as an alternative. The most significant observation trend ramification is the growth in the length of stay in this status. In 2006, only 3% of observation stays lasted longer than 48 hours. In 2011, the percentage increased to 11%. In certain regions today, the percentage is as high as 14% of observation stays exceed the 48 hour period.
In May, CMS proposed to alter or modify the observation stay vs. inpatient stay criteria; creating additional clarity for recovery auditors. The proposal would allow recovery auditors to presume that any inpatient stay equal to or greater than two midnight periods (one Medicare day) is appropriate. Stays shorter than this duration (inpatient) are thus classified as outpatient. CMS has not yet codified this change.
Earlier by a month or so, two bills were introduced (companions) in the House and the Senate. Both bills proposed modification to Title 18 (Medicare) of the Social Security Act, effectively classifying an observation stay day as equivalent to an inpatient stay day for purposes of satisfying the three-day prior stay requirement for Medicare coverage in an SNF. The bills are titled “Improving Access to Medicare Coverage Act of 2013”. Each has achieved a fair number of co-sponsors and today, reside in committee (House sub-committee on health and the Senate).
The likelihood of passage is by my estimate, 50/50 at best. The rub in terms of passage is cost as a change in definition (proposed) will increase the coverage exposure for SNF stays. No one knows what the exact magnitude is and no CBO score exists for either bill (yet). Additionally, CMS is likely to balk as simplification as proposed will have a spill-over impact on the “appropriateness” definition presently used to recover hospital payments for “unwarranted” inpatient stays. There is no question that weighting a day under federal law equivalent to another day for coverage purposes will push hospital lawyers to pose arguments that reclassification of inpatient to outpatient days via recovery auditors is “capricious”. Such arguments are already in federal courts and administrative courts. Further, a case filed in 2011, Bagnall v. Sebellius argues that the use of observation stays violates federal law. This case is not yet at trial but will in all likelihood, receive a boost if Congress amends the Social Security Act as proposed.
Regardless of the legislative outcomes, it is clear that movement is in-place for additional clarity around the use and misuse of observation stays. Even sans legislative success, CMS is now tasked to modify and clarify the use of observation status and thus, re-focus recovery auditors on a more direct course of Medicare payment excess. This issue needs resolution and frankly, Medicare auditors need to focus more attention where the real abuse and overpayments are occurring. This is small potatoes by comparison.
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!
The Fiscal Cliff stories are everywhere and as a result, lots of misinformation, conjecture, and supposition of deals, no deals and what happens next abound within the media. The economist in me can’t help but opine on the economics at stake but for this purpose, I’ll take only a slice of the overall issues; a healthcare slice.
Suffice to say, the issues on the table are polarizing and complex as the intricacies of policies current, past and yet in transit are all actors in a grand ideological play. If for example, I chose to take each possible issue that is part and parcel to the Fiscal Cliff discussions singularly, elaborating on what the issue is, why it is part of the discussions, and the pros and cons of addressing the same temporarily or permanently, I would pen the equivalent of War and Peace. The healthcare elements are complex enough and below, I’ve done my best to summarize and focus.
- Obama Care/PPACA: This is the grandaddy of conundrums at the table, ideologically and practically. The ideological issues are clear while the economic implications are muddy and tied to issues within the Fiscal Cliff discussions. Taking this issue in two big chunks for sanity and brevity, the discussions tilt on separate axis’: Deficits and Taxes. Sequestration which is part of the Fiscal Cliff discussion (cuts in federal spending), impact Medicare and are a direct result of rising federal deficits and the debt ceiling (yes, its back) debate. The primary driver of current deficit levels is entitlement spending. Within and inextricably linked to the Fiscal Cliff discussion is renewed discussion regarding entitlement spending, the debt ceiling, etc. and thus, costs associated with the PPACA. As Congress controls funding for federal programs, an unavoidable discussion regarding Medicare and Medicaid spending is embedded within the Fiscal Cliff/debt ceiling discussion and thus, core elements of the PPACA are on the table (metaphorically). The second chunk of PPACA impact is its phase-in of new taxes. Here’s where things get horribly complicated. First, the PPACA imputes an additional Medicare tax on individuals that earn over $200,000 and families that earn over $250,000 (.9%). This tax applies only to “people” not employers. In addition, the PPACA imputes a 3.9% tax on investment income for individuals and families. Investment income is defined as dividends, capital gains, rents, royalties, etc. This tax applies to any individual with a Modified Adjusted Gross Income of $200,000 or families at $250,000. The Fiscal Cliff twist or dilemma? If no compromise on current tax rates is attainable and the rates rise to pre-Bush levels, a person earning over $200,000 per year could pay capital gains tax (including the PPACA portion) of 23.8% (currently 15%) and a dividend tax of 43.4% (currently taxed at individual tax rates or approximately, 35%). This implication alone has many economists fearful of signficant market reactions and potential pullback from investors enough to create a recession.
- Medicare Cuts: This element of Fiscal Cliff discussions contains known and unknown elements. The known elements involve Sequestration cuts if unresolved, equal to approximately a 2% Medicare cut in provider payments and the evaporation of the present “doc fix” funding, netting in January to a 27% cut in physician and other Part B provider payments. Without resolution, both occur automatically. The unknown elements center around the debt ceiling and the structural deficits current and projected in entitlements, principally Medicare and Medicaid. In a recent Fitch outlook, Fitch indicated that while the healthcare industry outlook at present is stable, deficit reductions, increased taxes, etc. could drastically change industry fortunes to negative and quickly. Fitch notes that margins today are small and capital levels reasonably adequate but fortunes can change quickly with margin erosion via cuts and unmeasured structural changes to Medicare and Medicaid funding. Given that numerous provisions across healthcare arising from the PPACA are presently in-play (hospital readmission penalties and medical device taxes for example), the industry is already under a certain amount of constraint.
- Healthcare and the Economy: Healthcare today is a $3 trillion economy, larger in scope than the entire Canadian economy (GDP) of $1.74 trillion. In fact, only three other nations in the world have a larger total economy than the U.S. healthcare economy (Germany, Japan and China). The Fiscal Cliff implications for healthcare also hold enormous economic implications for the U.S. Simply, if the U.S. economy moves closer to a total stall or recession, the impact on healthcare is enormous. The two largest entitlement programs are tax funded and a reduction in tax revenues via additional economic slow-down, further employment rescission, etc. places not only additional deficits into Medicare and Medicaid but additionally, removes paying patients from the system. More deficits in Medicare and Medicaid place greater burden on policy makers to cut spending. Economic weakness moves patients away from seeking care and ultimately, shifts the health risk profile of the population. This shift is insidious and fraught with long-term implication as it is typified by undiagnosed and ill-treated chronic diseases – already a major problem in the U.S. Any further long-term erosion of population health status due to persistent underemployment, unemployment, etc. pushes the unresolved care burden incrementally higher (more expensive). The net result is a sicker population overall, one that becomes ridden with chronic illness, disability, etc. Further, additional burdens for providers arise in the form of patients seeking too much urgent and emergent care; expensive and often, under or not reimbursed adequately, if at all. Given that the economy remains in an overall fragile state of recovery and the last series of years have been straining on providers, any inability on the part of Washington to resolve the Cliff issues with certainty and equanimity bodes poorly for providers and patients alike.
One week from today is the national election for president, every seat in the House of Representatives, and one-third of the Senate. Additionally, there are numerous gubernatorial elections and local or state-wide races at issue. No other nation on the face of the earth affords, nay protects, the rights of all of its citizens to partake directly in government.
The U.S. is unique in that its government is a representative form of democracy. We directly elect those we wish to represent us at every level of government; local, state and national. The power, used correctly, is that each voter contributes directly to current and future outcomes of the governing process. The power used incorrectly, or in my view abused, occurs when we get government by abdication. Power can be used correctly to instill direction and movement. It can be misused, creating havoc, uncertainty and upheaval (Syria, Egypt, and Libya come to mind as recent examples). Power can also be fallowed; left unused and thus on-the-shelf, inappropriately placed perhaps waiting for some future opportunity. In our form of electoral process, power is given and protected often at great human cost, with the intent of use, not misuse and not left unused.
In 2008, the national election was prized as a great example of engagement and voter turnout – just a shade over 60%. In terms of turnout of the voting age population, the number was just under 57%. By any statistical measure, more than one-third of eligible voters abdicated their individual power and decided that the other less than two-thirds would decide their course for the next four years. While I have no statistics in terms of how many voters merely failed to vote for a national race yet participated locally, I suspect the real results are inverted – they voted nationally and failed to cast a local or state-wide vote.
Projections for this cycle suggest a lower turnout than in 2008. How sad. Even sadder is the certain lament I will hear from folks about the outcome, the course of the country and the assorted woes and struggles that are apparent for most who choose to abdicate their power. The disconnect between how “things” work and who influences direction is a crevice that demands attention.
Like the candidates or not, next Tuesday is a monumental day in the U.S. To anyone paying attention, the choices on our ballot are clear. As I have said before, I am not partisan moreover, opinionated for reasons I articulate in my writing. Frankly, I could care less how people vote, just so they do. Government by abdication scares me in what is left of this free (or mostly) society. I fear slippage will continue if we can’t marshal our collective rights, utilize them, and express our personal and where applicable, collective opinions.
As I wrote previously, elections have consequences. Those who vote typically understand the consequences far better than those who don’t vote. Today, the potholes and sink holes are fairly evident yet what we fail to grasp is the depth. Like all elections, this one is consequential but for reasons perhaps to economically wonky and policy wonky for many to grasp. I just hope that the sense of either right-course or wrong-course is palpable enough today to muster a stronger turnout than predicted.
For me, the direction is clear. I am at heart, an economist and a policy guy. I love the detail and spend much of my days working with folks on the guts and outcomes of health and economic policy. I think I see the big picture and gravitate to the broad solutions rather than the micro. I am after all, someone who has built businesses and had success by finding solutions and compromises across broad issues and strategies. I think of things as issues where convenience breeds unintended consequences and follow most acutely, the wise words of my father: ‘Tell people the truth, even if you know it’s not what they want to hear, tell it to them just the same”.
I know election hype is less about truth in the media or the debates as people seek style rather than substance and the forums provide little opportunity for substance. Yet substance is available for those who seek it. Records are public, depicting action and inaction. Most outcomes are known or knowable for those who want to ponder and probe just a tad deeper than the conventional news cycle. Character is fairly displayed. We can frankly, make clear decisions with sound logic on the policies and ideas that matter and if brave enough, tune out the conventional opinions, polls, political caricatures and robo calls. We have the power and while it is cliché, a comic book hallmark stated it best: “With great power comes great responsibility”.