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Elections Have Consequences

Heading into round 2 of a three round debate format (tonight), I think its time to put a few core concepts on paper (or e-media in this case) for folks to remember about this political season.  My role or task here is not to be partisan (your decision suffices on this front) but to be focused on the “heart” of the subject, not the rhetoric that permeates the debates and the political reports.  In short, rather than slicing and dicing on things that ultimately matter very little, let’s look quickly at why elections have consequences.

  • In the system of government tried and true in the U.S., the presidential election is relatively unimportant in the daily life consequences of citizens.  Promises about tax cuts, passage of certain legislation, removing certain regulations or adding new ones is pure rhetoric.  Our system does not afford the President such powers.  He/she is not a king or even a legislator as powerful as the Speaker of the House.  The election with more consequence is the one where seats in the House (all) and the Senate are open.  So goes the political balance, so goes the ability for any president to achieve policy agenda priority.
  • Where the President matters in elections isn’t often discussed in a debate or is certainly, glossed over.  The Presidency is a position of state; a leader to the international world and the domestic (entirety) world.  In this regard, the election is about certainty, purpose and vision.
  • The next president will likely play a very critical role in shaping the judicial branch of the government as four justices are over 76, one with pancreatic cancer and another who has openly said he will retire post this term and the election.  While the President can’t appoint any old person without confirmation, wide deference is given to this appointment and but in rare exceptions, confirmations are all but certain.
  • Rhetoric and policy language aside, the Presidency in an election is all about picking someone who can truly galvanize compromise, not push ideology.  The best at this role includes names like Reagan, Roosevelt, Kennedy and Lincoln.  They knew that ideology stabilized voters and painted a picture but that the true job was about action not rhetoric, photo opps and speeches.

What is at stake today is an array of deep challenges across a breath of policy fronts.  The following list is not exhaustive but prioritized by a guy who is an economist by study and a health policy and health care businessman by trade.

  • Its time to ignore the phony math and crazy skewed data published with regard to certain economic indicators spewed across the airwaves.  The reality is that economic growth expressed via GDP is stagnant and it has been for quite some time.  Unemployment, underemployment and personal income is at perilous levels and not improving.  The recent drop in unemployment is about as real at the main street level as the Tooth Fairy.  Yet, jobs do exist that pay well but the gap between skill levels and the job requirements continues to widen.  Manufacturing has changed and today, it requires skilled work.  So do health care jobs.  We also need to somehow, do a better job reminding our children that not everyone is suited for a career in management and most jobs, require that you show up, work hard and maybe, just maybe, get a little dirty now and then.
  • Bad, forget that, horrendous and irresponsible fiscal policy from Washington has the country facing what many are calling “the fiscal cliff”.  The timing could not be much worse given the health (lack thereof) of the economy.  Defense spending and sequestration cuts are hardly the major issue here – the cuts are very minimal and parceled out over a decade.  The issue here is revenue and Washington has boogered-up tax policy via tax credits, one-time reductions, etc. so as to create a Phantom Menace around personal and corporate income.  The first priority at hand is to create revenue certainty and simplicity via sane tax policy.  The next is to rationally, reign in non-essential spending.
  • There is no path to prosperity (sorry Paul) and no way forward without entitlement reform – large-scale, total.  Entitlements consume every dollar of revenue today and no tax policy fixes that equation.  Reform must occur.  One of the most ironic and frankly scary conversations I have with hospital folks is around Medicaid and Medicaid expansion.  When hospitals argue that Medicaid expansion is a good thing because it reduces the number of non-paid services provided, I know we have come to an end.  As the old Pogo cartoon strip relayed, “We have met the enemy and he is us”.  Continuing to do more of a dumb thing faster, with more money on a broader scale only produces more stupidity.  Expanding entitlements with debt financing is about as idiotic of a proposition as I can think of, regardless of who gets paid.
  • Drilling for more fossil fuel is not a solution to becoming energy sufficient, creating more end-product capacity is.  We need to invest in refinery capacity and modernization and locating the same where it logistically belongs.  We also need to drop the “green is good” at any cost if we expect the economy to recover.  Green is only as good as the return on the investment dictates.  Using food for fuel is a stupid idea especially since the only way it is economically feasible is with federal subsidies.  It is even more idiotic when viewed in light of the energy input required to produce an ounce of a product that is less efficient.  And no, I am not anti-environment as I am avid outdoorsman and a life supporter of Ducks Unlimited.  I am a pragmatist and I know that economies seek equilibrium – balance.
  • To rebuild the “American Dream” (if this language suits), we need to get everyone in the U.S. to again have “skin in the game”.  We aren’t there and in fact, we continue to widen the gap between those who pay and those who don’t.  In a bad CBS interview when Mitt Romney was asked if it was fair that a man of his status in life paid less by rate in taxes than someone earning $50,000 per year, Mitt bombed.  The fact is that Mitt pays more in rate, at his 15% or so, than the person earning $50,000 or $60,000 today.  This is even after giving millions to charity, which if imputed into this tax rate, raises it even higher.  Trust me, I am not a die-hard Mitt fan nor am I advocating for him.  The plain reality is that the incentives need to align so that everyone has skin in this game not disproportionately more by income.  If for no other reason than getting it right, we need to quit pointing fingers and bashing the Mitt Romney’s of the world as last I checked, Mitt earned his money and created lots of jobs.  He isn’t even as rich as Bill Gates or probably, Brad Pitt but no one bashes Brad.  How many jobs did Brad create?  I know the answer for Bill.  Class warfare is ugly and we are busiest today trying to escalate the war.
  • As I have written before and I live through it and see it daily, certainty is lacking.  The real issues we face require simplicity and certainty in order for jobs to grow, homes to be sold and businesses to grow and multiply.  This is less about numbers and more about policy.  Governments stink at and are incapable of redistributing “wealth” and legislating morality (unless the government is a totalitarian state and as history has shown, those don’t last real long).  Wealth balance comes from matching productive inputs with an investment return such that it is equal or greater in value to the input, to create sufficient and when needed growing levels of inputs – this system creates balance across executives and workers alike, proportionately.  We can’t evolve to a system that is punitive to those who take risk and lever their talent for handsome reward because arbitrarily to some, this isn’t fair.  I’ll defend Brad Pitt’s right to make gazillions if people are willing to reward his “input” in the form of acting talent, etc., even though I don’t think much of his movies or his acting.  Truth be told, he earned it and took the risks and leveraged whatever his gifts were and no governmental entity should try to redistribute his earnings to someone else in the guise of “fairness”.  He should pay proportionate by rate and rate alone, taxes but no different from someone who uses his/her talent to weld.  If Brad wants to  redistribute his wealth via charity, that is his choice.

Happy debate watching – enough said – for now.

October 16, 2012 Posted by | Policy and Politics - Federal | , , , , , , , | 1 Comment

Catching Up Part I: Politics, Observation Stays, and Medicaid

Off the golf course (reluctantly) and back to work.  Last week was full of catching up and revisiting issues and reports.  As promised before I went temporarily AWOL, here’s Part I of at least two parts (maybe three) of issues that I am following.

  • Politics and the First Tuesday in November: The conventions are done and now the grind begins through the November election.  This may be the most polarized election in decades and the price tag is certain a record breaker – approximating $1 billion. What is most interesting to me is the banter about the economy and healthcare.  Being that I am an economist by training and a healthcare guy on the ground, what I see is quite different than the rhetoric on the news, reported via polls, analysts, etc.  Here’s my twist on the substantive issues under debate.
    • The economy is stalled and the primary reason is uncertainty.  Fixing uncertainty is all about changing, for the U.S. economy, the consumer’s point of view.  Consumption drives economic activity (demand) and thus, businesses and suppliers will return with investment, jobs, etc. to meet the rising consumer demand.  This also is true for healthcare demand which has stayed level to flat in a number of sectors as the ranks of the under and unemployed have swelled (no job, no health insurance, no healthcare).  I suspect that a fair amount of healthcare demand is pent-up now, awaiting a change in economic fortunes.  Granted, this is primarily elective type demand but nonetheless, business and revenue presently absent.  Sadly, I also believe that a near-term rise in chronic disease is forthcoming as folks have foregone early intervention for lack of resources.
    • Creating “certainty” doesn’t happen via a presidential election directly unless the elected president is capable of galvanizing a vision and creating compromise.  For example, tax policy.  The economy is far more fluid than either party would want voters to believe.  It can handle higher or lower tax rates but not “tax policy” by absenteeism.  For the economy, the fiscal cliff is less about falling into the abyss and more about what is at the bottom of the cliff, if a bottom even exists.  Certainty is about rational for consumers, not ideology.  Only one major impediment exists to creating rational on a broader level and that is bureaucracy.  Endless regulatory policy and reams of court and administrative law interpretations are anathema to certainty.  Clear, straight-forward approaches that share gain and balance pain are necessary.  No business person that I talk with, healthcare or other, is simple-minded enough to believe that gain in any form comes without a certain amount of pain.  It is the fear of unknown pain (how much and how bad) that is keeping both consumers and producers away from the economic fray (discretion is the better part of valor).
    • Healthcare economics is trickier than either party chooses to admit and neither has an answer at this point.  Entitlement spending is out of control and the present policy fixes described, come woefully short of changing the trajectory.  Both parties are presenting band-aid solutions to a hemorrhaging wound.  The only true answer is a complete overhaul of Medicare and Medicaid from benefit levels to funding mechanisms to entitlement conditions. The Ryan Roadmap came closest albeit “close” in this case is akin to getting the ball near the red zone, taking three holding penalties and then fumbling at mid-field.  True, political suicide is sure to occur for anyone bold enough to take this on but failure to touch the core issues creates a certain “death by a thousand cuts” scenario.  Solutions are available but unfortunately for a politician or his/her party, each is too radical to tie to re-election prospects.
    • Regardless of the outcome of November’s election, recovery will remain slow and stagnant without fundamental changes to how we “govern”.  The prospects for recovery today are less economic and more policy weighted.  Without fundamental shifts in policy, recovery stays stuck in neutral.  For fans of civics lessons past, this has more to do with Congress than it does with the President.  Congress controls the purse-strings and makes the laws, not the President.
  • Hospital Observation Stays: In healthcare today, its hard to find a more on-point issue to underpin my comments on uncertainty than hospital observation stays.  Briefly, a hospital observation stay is a period of “limbo” time where a patient is typically triaged through an urgent care or emergent care setting proximal to the hospital.  The triage period has determined the patient unstable to return to a non-medical or community setting, requiring observation but services beyond this point. less clear as to justify an admission and inpatient stay.  Where the rub or issue is today is for Medicare patients and as most cases with Medicare policy issues, it is squarely bifurcated.  From the hospital side comes the concern regarding readmission penalties applicable to certain Medicare inpatient DRGs that re-visit the hospital with another admission anytime 30 days post-discharge.  The penalty for too many readmission instances in 2013 is a payment reduction of up to 1% of Medicare reimbursement. The number of applicable DRGs and the percent reduction for too many readmissions increases again for FY 2013, applied in 2014.  On the post-acute side, primarily the nursing homes, is the argument that a patient not admitted to the hospital but hospitalized in an observation status nonetheless, may not/won’t qualify for a three-day prior inpatient stay and thus, won’t receive Medicare coverage for their nursing home stay.  Arguably, the consumer or Medicare beneficiary and his/her family are placed in a stage of uncertainty as well and insurance and other coverages post hospitalization are jeopardized.  CMS has heard the concern and their answer is to expand an outpatient Part B billing (hospital) demonstration project that would provide a safe-harbor for hospitals on the payment end, somewhat.  Via a demonstration project presently under way, CMS proposed and is soliciting comments, on providing a 90% level of payment for a denied Part A claim via re-billing under the outpatient (Part B) program guidelines.  At the same time, they are stating that payment would not be made for observation status claims.  Payment of course is subject to medically necessary definitions, etc. Oddly, a wholly bizarre proposal.  Legislatively, two bills are working their way through the House and Senate with bi-partisan support. The origin bill is H.R. 1543 known as “Improving Access to Medicare Coverage  Act of 2011”.  This bill would require counting all hospital time against the three-day qualifying stay criteria for Medicare coverage of nursing home care.  This would re-solve the observation stay issue.  Watching this issue over the past years, I’ve seen a fairly consistent increase in observation stays and the length thereof.  While CMS implies that an observation stay should not last more than 24 hours, this guideline is clearly not followed and no enforcement mechanism is in-place.  In fact, this issue is so pervasive in the industry that Medicare beneficiaries have resorted to court action, charging that the use of observation stays violated their rights to use their Medicare benefits for skilled nursing care, creating real financial damages.  According to a recent study by Brown University,  average lengths of observation stays are up by 7% and in 10% of cases reviewed, the stay is longer than 48 hours.  Their findings also suggest an 88% increase (between 2007 and 2009)  in stays longer than 72 hours.
  • Medicaid: Alas, the election will push health policy debates regarding Medicare front-and-center while the bigger immediate looming gorilla is Medicaid.  Two distinct policy choices are going to get little play.  The first is the current-law provisions for Medicaid expansion which will cost an estimated $650 billion over the next ten years (I think this figure from the CBO is light).  The second is the Romney proposal to cut $800 billion for Medicaid funding and transition the program to a “block-grant” system.  In a block grant approach, the Federal government allocates a fixed amount of dollars to a state in return for the state providing certain levels of qualified services.  Typically, block grant style funding pushes more regulatory oversight back to the states and allows room for programmatic flexibility.  Medicaid today is actually a hybrid block grant program as states are required to provide certain levels and programmatic criteria before the government allocates funding.  My take, based on my discussions with various statehouses nationally is that the states are divided on which would work better.  Not surprising, present Red states prefer the Romney approach provided sufficient regulatory relief comes as a result.  Blue states tend to favor increased government funding and expansion as a means of helping the state fiscally.  With more and more states taking a Managed Medicaid approach, it would seem like a ground-swell of “reform” Medicaid  is brewing.  I’ve said for years that Medicaid, not Medicare, is this generation’s next biggest unfunded liability and all of the studies and numbers coming from credible sources bear this out.  The federal government has no means of sustaining the funding promises concurrent with the ACA expansion provisions.  States have no economic means to continue to fund the current liabilities let alone, any expanded programs (with or without additional federal dollars).  Providers are already loathe to see a growth in poor-paying Medicaid patients.  Forget the funding equations for a moment and focus just on the access issues.  How in the world can expanded Medicaid coverage be absorbed by the current level of providers even willing to take on additional Medicaid patients at below cost reimbursement levels?  Many rural and urban areas lack adequate supplies of providers as it is.  Adding to the ranks more Medicaid beneficiaries with existing demand will only create widening access gaps.  And honestly, where will the dollars come from necessary to improve payments enough to entice providers to open their arms, clinics, offices, hospitals, etc?  My take is that the Medicaid issue needs real-watching as this system is approaching melt-down and can very easily, contribute a significant drag (already is) on state economies and their recovery.

Part II soon to come….

September 11, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | Leave a comment

What’s Trending: Back on Track….For Now

Finally, my plans and I collide again on a Friday afternoon and I’m somewhat back on schedule … for now.  With forecasted travel next week plus a touch of R&R time, it looks like I’ll be back off-track before long.  We’ll see.  Not a lot different on my dashboard as this week concludes.  I’m pretty much awash in health policy “what if” issues as of late so my trends at this mid-August point follow this theme.

The Great Medicare Debate and the Reality of it All: One week post, not quite, of the Romney selection of Paul Ryan as his running mate and the proverbial Medicare fur is flying.  The back-and-forth accusations of which party cut (or would cut) Medicare most, change the program, alter coverage for the poor, etc. is both fascinating and nauseating at the same time.  The reality of this discussion is not available via the words and rhetoric but in the economic outlook for Medicare and Medicaid.  Both programs are enormous and structurally unsound.  Both are unsustainable without ramping deficit levels.  Both need significant reform at all levels and with a larger vision than either party wishes to admit.  The real validation this week came from Moody’s Investor Service.  Moody’s issued a negative outlook for non-profit hospitals this week stating, “The economic recovery will remain tepid, the transition to new payment methodologies will require significant investment, revenue growth will remain low by historical standards, and reimbursement will remain under pressure from all sources.”  Their negative outlook focused on the funding questions for Medicare and Medicaid combined with the Washington stalemate on health care reform and policy decisions tied to spending, taxation, etc.  My trend to watch has little to do with the election rhetoric and more to do with how everyday life responds to the debate and the questions that are looming and unanswered.

Medicaid and State Elections: Kaiser’s on it (see ) and I’ve talked at length about the real impact of the Supreme Court decision regarding Medicaid expansion not being fully visible until later this year.  If this fall, more statehouses shift to Republican control, it is likely more states will pass on Medicaid expansion.  Is it possible that more than a dozen states opt out?  The more that do, the more pressure for Medicaid programmatic change will roll to Washington. A potential, and today that is all it is, Republican coup from Washington through double-digit state capitols and legislatures could create a literal tsunami of death for Medicaid expansion, even if repeal of the ACA is not in the cards as a result of no real numbers changes in the Senate. Predictably, I am forecasting that Medicaid not Medicare, will be the first substantive and large-scale change post ACA passage and not in the way spelled-out in the ACA.

Hospitals and Readmissions: October 1 is fast-approaching and thus, the roll-out of penalties via reduced Medicare payments for certain “avoidable” readmissions. The focus of the October 1 penalty period is the rate of readmissions (within 30 days of inpatient discharge) from the three-year period between July 2008 and June 2011.  Applicable diagnoses are heart failure,  heart attack and pneumonia. Starting October 1, we already know of more than 2,000 hospitals that face reduced Medicare payments (up to 1% of base Medicare) as a result of higher readmission rates.  Nationally, the average readmission rate has held around 19%, equating to 2 million Medicare beneficiaries costing Medicare $17.5 billion in additional spending (per CMS). Starting next year (begins October 2013), penalties rise to 2% and then in the following year to 3%.  According to CMS, of the 2,200 hospitals presently in queue for penalties, 1,900 will receive less than the 1% maximum.  From all indications, the hospitals hit hardest serve a disproportionate share of at-risk elderly and patients that comprise the lowest (or near lowest) SES (Socio-Economic Status).  These hospitals tend to be more urban, more teaching oriented, and more Level 1 centers than others.  My trend to watch is now that the penalties are known, applicable to which hospitals and the data available, is what behavior changes will occur at the hospital end and in addition, what post-acute providers shift to position themselves as possible solutions to this problem. Anyone interested in knowing the penalty applicable to a particular hospital, drop me a note at or coment on this post. I have the full list from CMS.

Finally, a bunch of Fall Out issues this week (worth noting but not necessarily worth continued watching).

  • According to study completed by the Commonwealth Fund, the vast majority of hospitals are not seeking to develop an ACO (Accountable Care Organization).  The primary barrier in considering whether to participate or not is the willingness to accept financial risk.  Those that have jumped-in were driven primarily by physician leadership and engagement.
  • According to polls conducted by the Kaiser Health Foundation and the Washington Post, a majority of Republicans and Democrats oppose cuts to Medicare benefits or transitioning the program to a voucher type system. I do love polls! Makes one wonder what the poll would look like if the majority of Americans preferred a different system?  Do the Lemmings always march to the cliff at the sea?
  • In a report to Congress, CMS indicated that first year results were mixed  in the SNF pay-for-performance pilot; a three-year demonstration program.  The program’s goal is to reward via increased payments, SNFs that reduce hospitalizations and exhibit high clinical quality measures.  The pilot includes over 180 nursing homes in Wisconsin, New York and Arizona.  Per CMS, one of my favorite states did very well.  Congratulations Wisconsin!
  • One last political bit…and a definite fall-out issue..  Paul Ryan is everywhere on the news and the Medicare reform/restructure debate is hot and getting hotter.  I know it’s easier to listen to the media coverage than to dig through the numbers but I urge readers because of the magnitude of the health care decisions facing us now and going forward, to read the related CBO reports and the pieces produced by Paul Ryan regarding his approach to entitlement reform.  I for one, am not going to tell anyone how to vote but I certainly urge everyone to understand both sides of the issues and to get the “facts” before deciding which “tailored” news report or interview to put stock in.  Enough said – for now.

August 17, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | Leave a comment

What’s Trending: Catching Up

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

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

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

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

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

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

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

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

% of the 2012 Federal Budget of $3.8 Trillion

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

Social Security                                                               .798 Trillion              21%

Defense                                                                            .722 Trillion              19%

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


Other Welfare Programs                                      .722 Trillion              19%

Education                                                                .152 Trillion                 4%

Foreign Affairs                                                       .038 Trillion                 1%

All Other Government Spending        .              .304 Trillion                  8%

——————            ———–

2012 Total Federal Spending                             $3.800 Trillion             100%

2012 Total Tax Revenues                                       2.473 Trillion               65%


$1.327 Trillion               35%              (Federal Deficit for 2012)

$16.400  Trillion                                  (Total Federal Deficit)

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

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

What are our Presidential and Congressional Candidates saying:

1. Just cut government waste.

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

3. Just control government spending

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

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

a. Significant cuts in Entitlement programs and Defense

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

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

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

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

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

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

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

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

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

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

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

CBO Releases Updated ACA Score

Tuesday, the Congressional Budget Office released their updated score of the ACA post the Supreme Court ruling.  Substantively, the only reason or need for an update is the Court’s tweak concerning Medicaid expansion; allowing states to opt-out of expansion.  See my post from earlier this week for a bit more information on the Court’s ruling and Medicaid expansion .

To the substance of the report: The CBO’s estimate is vanilla in a world today that is full of different flavors.  In short, the report takes a middle-of-the-road approach in estimating the ramifications of state decisions to opt-in or out of Medicaid expansion. One could literally read this conclusion weeks ago as the charge of the CBO is tight and constrained to interpreting only what is “known” at the time of their work/estimating.  As the Court’s decision creates an uncertain policy framework where certainty can only occur over time and is in the hands of state governments, the CBO can’t know enough point-in-time to craft a fully formed estimate.  The estimate thus concludes with virtual “minimal impact” compared to previous estimates.

  • The revised 11 year projection (2012 to 2022) is for a total insurance coverage outlay of  $1.168 billion compared to the March estimate of $1.252 billion; a net savings of $84 billion.  This element is separate from all other ACA costs/outlays.
  • The change in outlays is attributable to a shift in the assumption of insured private enrollees (exchange participants) versus those covered by Medicaid, tallied against those forecasted as uninsured (a three million forecasted increase over previous estimates).  The breakdown assumes some states, though unknown how many, will not participate in expansion and thus, a segment of the the population eligible for private subsidized insurance plans through an exchange will purchase coverage therein, others will opt for uninsured or fall in the gap between Medicaid coverage qualified (expanded federal poverty limit) under ACA provisions but reside in a state where expansion hasn’t occurred.  The CBO assumes this total be 6 million; 3 million go a private route and 3 million end-up uninsured.
  • The projected decrease in federal spending for individuals that do not enroll and thus become uninsured is $6,000.
  • The net difference between a person participating in Medicaid versus accessing coverage through an exchange is projected at $3,000 higher – Federal subsidy for private insurance at $9.000 versus a Medicaid cost of $6,000.

Today, little political fodder is available for either party as a result of this latest estimate.  The President and Democrats can’t claim too much victory here as any slight upward deviation in the number of state opting out of expansion and more important, certain states with disproportionately higher levels of current uinsureds and potential Medicaid eligibles shifts the numbers dramatically and negatively.  Additionally, on the heels of the Volcker report, Medicaid is a known travesty for states and touting expansion based on the CBO report as a “good thing” fiscally doesn’t quite ring true in the big picture.

Republicans are likewise stuck on this issue as it doesn’t refute any prior estimates or add any new substantive economic data to the debate.  Republicans will continue to push for repeal via November elections; the only remaining feasible option on their end for altering the trajectory of the ACA.  Taking on the CBO projections is not a political win for either party and Republicans know this; especially in an election year.  Besides, the economics are too complex for most voters, leaving the sole play an emotional and ideological issue/debate.


July 26, 2012 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Medicare SNF Rate Outlook

Literally fresh off of a significant rate adjustment/reduction in October (2011), Medpac (the Medicare Payment Advisory Commission) releases a recommendation for complete SNF payment overhaul.  In their assessment of the SNF payment system under Medicare, Medpac concludes the following;

  • Medicare payments to SNFs represent 23% of all revenues.  Medicare (payer) as a share of SNF patient days averages 12%.
  • Provider supply and occupancy rates remain essentially flat year-over-year (2009-2010).
  • Quality as determined through survey and other indicators remains unchanged.
  • Average Medicare margin is 18.5%.  The average margin for for-profit SNFs is 20.7% and for non-profits, 9.5%.

The crux of the Medpac argument is that efficient providers have lower costs (about 10%) and higher quality as evidenced by higher rates of community discharges (38% higher) and lower rates of rehospitalizations (17% lower).  Accordingly, Medpac believes that the current system, inclusive of recent adjustments to rates (October) is set to produce the same level of behavior and outcomes, plus account for a 14.6% average margin in 2012.  The argument put forth by Medpac is that the Medicare SNF system must be re-based, principally due to the fact that margins have run consistently above 10% since 2000 and the correlation between margins and patient case-mix is non-existent.  In summary, the Medpac recommendation, which will head to Congress in the upcoming months, is to revise the PPS system now and begin rebasing rates in 2014, in phases.  In addition, Medpac is calling for a rehospitalization impact (negative) to rates for poor performing SNFs.

Ordinarily, Medpac recommendations such as this have more of a “frame the argument” impact than a real implementation objective.  Congress has been reluctant to take steps this drastic to any Medicare provider group for fear of industry fall-out and political damage.  Yet, as we have seen with the home health industry, greater movement is possible where rate cuts are concerned, particularly if the general tone is that the industry is too profitable and said profit is coming from gaming the system.  Double digit margins seem to get even Congressional types’ attention.

Looking at the industry, how the rate reductions in 2011 transpired, the initial report/recommendations from Medpac, and the current public policy environment in Washington, my near term rate outlook for SNFs is as follows.

  • All the evidence suggests PPS refinement is forthcoming.  The system simply isn’t working adequately in terms of tying payment rates to care costs and rewarding quality.  The “behavior” effect that CMS is looking for, namely a movement away from “rate ramping” focused on rehab case-mixes to rate equalization focused on a balanced book of Medicare patients (balanced case-mix) isn’t happening and apparently, isn’t properly incented in the current system. 
  • Rebasing isn’t far-fetched but it is aways off.  CMS is prone to be exceptionally slow at devising payment systems and of course, equally inept at getting the infrastructure to work properly.  If as I believe, the first step is PPS refinement, given the likely horizon of implementation, rebasing is farther away; certainly farther than 2014.
  • There is no question that payments will become tied to certain quality indicators, especially rehospitalizations.  This trend is foretold in the PPACA (Reform) and regardless of the law’s future (life or death or limbo), the payment tied to quality trend is here to stay.
  • Politically, the will to champion what will be viewed as over-payments is far less than the will to find ways to rein in excess (or perceived excess).  All this means, regardless of the upcoming political cycle and elections, is that lobbying for a system that continues to produce average margins north of 14% will fall on principally deaf ears on the Hill. 
  • Rates are trending down and I suspect another round of flat to modest decreases in rates forthcoming in October.  The push will be system revision as opposed to just rate reductions, feeling that the best approach is to revamp the existing PPS and in so doing, create lower spending overall.
  • Time tested arguments against cuts that won’t work or have run their course are as follows;
    • Medicare margins are necessary to offset Medicaid losses.  This one is good on its face but in reality, its tough to make the case for margins that have run in the 20% range and earnings that have been solid among the for-profit companies.  The publicly traded guys need to show pain (in the form of earnings) before Congress will relent on the lack of merit for this argument (publicly traded SNFs tend to have higher MA census and higher Medicare census).
    • Access will become an issue and facilities will close.  Per Medpac and most industry observers, the supply today is adequate and slightly surplus so some continued shrinkage isn’t a big concern.
    • Job losses will certainly occur.  The latest cuts from October don’t support this argument by any magnitude.  Additionally, the overall health care industry is growing so worker displacement isn’t really a grave concern – movement is easy between providers in most markets.
    • Capital will be even more difficult to access with future negative rate outlooks.  Again, this is a decent argument but in reality, capital access is provider specific and CMS and policy makers realize that well run, profitable providers will continue to have access to capital, even if the industry outlook is negative.  A better argument is that negative industry outlooks make capital marginally more expensive and the number of outlets fewer.  This is true only in the short-run however.

So in conclusion, here’s the take-away: Medicare rates are headed down in the near term and in the intermediate term.  It is a virtual certainty that the present PPS system will be revised over the next three to five years.  The future of the PPACA will impact this process as elements of reform shift the landscape for all providers.  The debt discussions in Washington will have literally no direct impact on the future of Medicare SNF payments; the industry share of the overall spending pie is negligible enough to not be overly impacted by automatic cuts in federal spending.  The future is one where providers must learn to balance their overall Medicare book/case-mix and focus on quality.  Quality incentives/penalties are a certainty and there is no longer any room left to ignore outcomes such as discharges and rehospitalizations.  Likewise, I believe bundled payments are forthcoming and the further development of ACOs will continue to shift SNFs to align their care and product/service offerings toward outcome oriented, bundled payments.  Medicare as a payer source will remain profitable for many SNFs although not at the same margin levels seen over the past decade.  Profitability ranges will trend into the high single digits or perhaps slightly more but only for providers with a well-balanced case-mix.  As always however, the key to making money in this declining reimbursement environment stems from solid management, a well-balanced payer mix, and an operating infrastructure that is aligned with the incentives remaining in the industry.

January 31, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

Current Policy Trends to Watch

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

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

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

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

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

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

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

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

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

Post-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

CMS Announces Medicare SNF Cuts: The Implication

On Friday, CMS released its Final Rule regarding FY 2012 SNF PPS reimbursement.  The Final Rule implements a reduction or “cut” in SNF PPS payments equal to 11.1% or $3.87 billion.  The 11.1% reduction is based on 2011 rates and spending/outlays.  In their proposed final rule published in May, CMS alluded to the real possibility that it would seek to reduce SNF payments via some element of program/technical correction as well as rate reductions.  Their reasoning stemmed from claim and resulting outlay experience that was significantly greater in dollar amounts than originally forecasted when MDS 3.0 and RUGs IV was devised and implemented.  Summarized, CMS had intended the conversion from RUGs III to RUGs IV to be expenditure neutral for Medicare.  Per recent figures and analysis from the OIG, expenditures under RUGs IV are running 16% higher than the “neutral” target.  For more information, see my recent post on this same topic at .

Given that the text of the Final Rule won’t be published until August 8 and as of Friday, CMS was still working on recalibrating the CMIs under RUGs IV, it isn’t possible to provide direct analysis of the actual rate scenario for FY 2012.  What I do know however, is that the “bark” in this case is definitely worse than the “bite”.  While overall spending is set for reduction, this doesn’t necessarily correlate directly to rate.  Briefly, here’s why:

  • CMS has factored into their projections of lower spending levels, a series of technical corrections such as changes in how minutes are allocated among participants in group therapy.  This change closes a loophole or as I have said, an area of oversight in the transition from III to IV.  Going forward, group therapy minutes must be divided in equal increments among all participants (e.g., one hour of therapy provided to a group of four equals four 15 minute therapy sessions; not an hour allocated to each participant as the system presently allows).  Additionally, CMS is tightening the Change of Therapy assessment requirements to more specifically, capture any changes in a patient’s therapy needs that would preclude re-classification to a different (presumably lower) RUG category.  This change is separate from any Change of Condition assessment.
  • Recalibration of RUGs categories via adjustment to the CMIs will occur based-off of 2011 utilization and projections.  The net result is change in category payments that will remain higher than experienced under RUGs III levels.  In short, the net “cut” will not be 11% across the board.  SNFs need to be astute as to how the CMIs work and translate into payments under each RUG.  Recalibration is designed to restore parity to the overall expenditure profile.  In order for CMS to do this, it will overlay utilization trends and patterns across the CMI continuum and adjust rates within the scope of its technical corrections, to forecast an overall program expenditure target that agrees (theoretically) with its original intentions in converting to RUGs IV.  In short, this doesn’t mean an 11% direct rate reduction.  If CMS were to impose and 11% cut to each category, overall outlays would reduce by more than 30% – that is not the target.
  • Based on what I see from most providers with a fairly balanced Medicare book of business (mix of clinical/nursing and rehab cases on par with 40% clinical, 60% therapy), the net to their per diem will be flat to a reduction of 2 to 5%.  This means that a facility with an average per diem today of $450 per day will see a 2012 per diem between $425 and $450 per day.  Providers that took advantage of the group therapy option to escalate or maintain their high rehab payments under IV will likely see a greater revenue shock.  In virtually all cases, providers that have a fairly balanced Medicare book should see a 2012 Medicare per diem that falls 6% to 8% higher than their FY 2010 per diem.

I will have a better idea of the actual impact when I see the final CMIs and resulting RUGs IV rates.  In the meantime and until the Final Rule and rates are implemented on 10/1 of this year, I don’t see much in the way of political intercession to change (positively) the rate and spending scenario.  Spending at the Federal level is a toxic subject and even with a potential debt ceiling deal looming, the microscope will remain directly on all areas of federal spending.  Entitlement spending (Medicare, Medicaid, and Social Security) is rising substantially faster than discretionary or military spending and logically, presents a big target for deficit hawks.  Logically, it will be difficult to gain the support of any Congressional industry sympathisers to push more money back into a system that most acknowledge, was unintentionally overpaying for care.  Consider FY 2011 a bit of a windfall and the changes forthcoming, pretty darn modest; all things being equal.

July 31, 2011 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | 2 Comments

Medicare SNF Cuts: Fact, Fiction, Probability

In early May, CMS released its proposed rule for FY 2012 concerning Medicare PPS reimbursement for SNFs.  As most followers of the industry from investors, to operators to developers know by now, CMS dropped a “bomb” to the industry indicating bluntly, a warning of a parity adjustment (reimbursement or payment reduction) of 11.3% or $3.94 billion.  In typical convoluted CMS fashion, the logic behind this foreboding news is scattered; an analysis of the agency’s inability to adequately anticipate provider behavior, utilization patterns, and to appropriately create a reimbursement mechanism that ties the cost of care required by current SNF patients with the costs and delivery systems necessary to provide the care.

Initially, the interpretation from many inside the industry was that CMS was overreacting, using only one-quarter’s worth of claims data to substantiate a “sky is falling” conclusion.  More recently, six month’s worth of claims data became available and analysis proved the trend correct and even a shade worse or better stated, more prevalent than originally assumed.  In short, the implementation of MDS 3.0 and RUGs IV missed the budget mark (budget or expenditure neutral) by $2.1 billion or 16%.

In the last week to ten days, the OIG (Office of Inspector General) for CMS stepped into the debate, stating its opinion that the overpayments must be stopped immediately.  Interpreting the OIG’s qualification of “immediately”, the timeframe at issue is next fiscal year.  In essence, the core of the problem continues to be the structural flaws within the RUGs system predominantly, that disproportionately pays more for rehabilitation therapy than for other primary care modalities.  A major intent of CMS during the switch from RUGs III to IV was a reallocation of the incentives (higher payments) from therapy to other resident care requirements.  Suffice to state, the methodology failed.  Below is a simple illustration of how on a pure rate basis, the RUGs III to IV therapy categories compare.

Table 1: Average Amount That Medicare Pays SNFs per Diem for Each Level of Therapy, FYs 2010 and 2011
Level of Therapy Number of Therapy Minutes Provided During Assessment Period Average per Diem Payment FY 2010 Average per Diem Payment FY 2011 Percentage Increase From FY 2010 toFY 2011
Low 45 to 149 $288 $430 49%
Medium 150 to 324 $369 $488 32%
High 325 to 499 $364 $532 46%
Very high 500 to 719 $418 $594 42%
Ultra high 720 or more $528 $699 32%
Source: OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011. See 74 Fed. Reg. 40288, 40298–40299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895 (Jul. 22, 2010).

Reviewed on-the-face, it is logical to see how CMS could miss the targeted expenditure mark by the margin it has, even in-spite of the “methodology” changes that occurred in the conversion from 2.0 to 3.0 and RUGs III to IV.  Providers, being logical creatures of certain habits, moved accordingly to grab the payments at the highest attainable levels or in short, fulfilled the economic axiom of, “what gets rewarded (paid for) gets done”.  The expectation on the part of CMS that utilization trends would fall-off from the higher paying therapy categories, necessitating a higher re-balanced rate to negate a revenue “shock” to the SNFs was poorly thought through.

Quickly reviewing “what” occurred to produce such a variance from assumption to actual is easy. Getting to the core takes a bit more thought and digging.  In summary fashion; CMS assumed that by restructuring how therapy minutes were calculated for concurrent therapy (therapy provided to two individuals) from a two-equals one basis to an equal half, would reduce the ability of providers to meet the higher per minute category qualifications, necessitating more one to one therapy sessions (the previous concurrent therapy rules allowed providers to have two people in the same therapy session with the total session time allocated to both participants equally).  Similarly, CMS assumed that ending the look-back provision to establish reference dates and care requirements would more accurately stage the resident’s acuity and care needs to the point of admission (or proximally forward from admission) to the SNF.  Additional tightening of the extensive services qualifier rules would also, as assumed, reduce higher RUG scores and thus, payments.  Of these changes and assumptions, only the look-back period changes combined with the changes in qualification for extensive services provided any material classification changes (lower payments) though such changes were far less in total dollars than the dollar increase CMS imputed on the corresponding RUGs III to RUGs IV therapy payments. Providers however, merely switched to the remaining “open ground”, providing more therapy on an individual basis and most noticeably, on a group basis.  On a group basis, minutes are counted collectively, not split in equal parts among the participants – a provision CMS did not change from RUGs III to RUGs IV.  While the modifications made to the extensive services qualifier and the look-back period provision did impact providers, CMS completely misunderstood the application and prevalence within the provider community of these two provisions under RUGs III and as played-out, found that providers could still code residents into higher payment groups/categories in spite of the changes.

To understand what might happen next, one needs to look at how this mess occurred.  As I’ve typically found, the answer lies in both camps; providers and CMS.  In my recent work, its clear that many providers don’t understand the transition from RUGs III to RUGs IV and as I have looked at “oodles” of Medicare claims, I dare say a large number are still frought with “up-coding” and questionable therapy-minute counting practices.  This is not to say that the whole of the industry has behaved in this fashion but arguably, and CMS understands this as do both major trade associations, providers have not totally changed their business models to reflect the changes in payment systems.  One needs only to look at how claims trended under RUGs III and how they now are trending under RUGs IV.  The trend is too consistent to support an assumption of SNFs; a) staffing substantially more therapy personnel to capture the minute requirements via individual treatment or, b) SNFs moved a sizable share of their Medicare case-load into group therapy.  The latter, while I’m certain it has occurred on a broad basis as the OIG report suggests, is problematic from a care delivery perspective for a large range of diagnoses that truly require individual therapy sessions.

CMS continues to remain fundamentally inept at developing reimbursement systems that provide adequate payment for the care and services required by SNF residents.  I have yet to see, across my 25 years in the industry, any period or any system devised by CMS that didn’t under-support or over-support, one type or category of patient versus others.  It is also illogical that CMS cannot develop the audit tools and claims management infrastructure that both educates providers and pre-emptively kicks-back claims clearly evidencing up-coding.  I am consistently amazed at “what” gets paid and for how long.  In short, CMS is apparently willing to consistently miss the mark, make wholesale adjustments and reallocation of dollars, only to over-correct past inconsistencies while producing new ones.  Such will not doubt occur with this latest blunder.

While I won’t claim to have a crystal ball in terms of forecasting “what happens” next, experience and ongoing dialogue with individuals on Capital Hill and within CMS gives me some decent insights.  With debt ceiling/deficit reduction talks mired in politics, it is unlikely any substantial cuts to entitlement spending are forthcoming.  Senate Democrats and the President are sufficiently dug-in on cutting Medicare spending by any measurable amount thus the target on this issue (Medicare SNF spending) has moved away from the current political fracas.  The remaining Washington impetus for cutting SNF reimbursement  resides within CMS.  In spite of the OIG’s report,  enacting cuts of the magnitude suggested is a political issue.  CMS can propose all the spending cuts its desires but Congress has the final say.  Rarely if ever, although given today’s climate an exception may be possible, has Congress sustained reimbursement cuts of this magnitude.  Synthesized, my view of what happens next, based on what I know to date, is:

  • Providers and their trade association are willing to capitulate to a modest adjustment in the therapy categories.  This symbolic give-back will play well politically.  Net of a market-basket/inflation update, cuts of 2% to 4% are possible in a “cut scenario”.
  • In a scenario that involves no real cuts, rates will be flat.  CMS will institute additional refinements and perhaps, even re-calibrate or fine tune payments by RUGs category, moving dollars within the RUGs system, without reducing payments.  In this scenario, the attempt on the part of CMS to is to “patch the potholes” and let the system itself reduce payments via tightening the requirements and re-allocating dollars within the RUGs categories.
  • A most probable scenario involves, as is typical, a bit of both.  CMS will cut the therapy rates using some language about re-basing.  At the same time, a series of corrections will be made regarding the counting of minutes for group therapy, assessment windows, etc.  Overall, payments to SNFs across all RUGs IV categories will be flat or targeted as a reduction equaling 2-4%.  The pull-back on the therapy RUGs rates could be as steep as 8% to 10%.  Even at this level, the remaining rate will be higher than the former RUG III rate.

July 24, 2011 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment