Friday Feature: Three Trends to Watch
TGIF! This Friday, I’m focusing on three trends that I think, will have a major impact on healthcare and senior living for the balance of the year and likely, at least the first half of 2024. These trends are in no particular order.
Banking and Credit Struggles: This past week, the Federal Reserve provided some not too encouraging data and outlook on the banking sector via their regular Fed Survey. According to the quarterly Senior Loan Officer Survey, the number of banks increasing loan terms of industrial and commercial loans rose from 44.8% to 46% at the end of 2022. No doubt, this percentage is higher (still) for the first quarter of 2023. Among the conditions driving this tightening are lessening liquidity (deposit level shrinkage), credit quality deterioration (poor performance on loans issued/held), and significant reductions in borrower collateral positions. Loan demand, principally due to higher interest rates, is also significantly trending down for 2023.
Credit tightening and fallow credit demand are typically, signs of weakening economy and a possible recession. The challenge for senior housing and healthcare is that these industries tend to be almost recession proof and always, in need of credit for primarily, plant, property and equipment investment. The senior housing sector is a large consumer of credit for ongoing improvements and for expansion or merger/acquisitions. Likewise, the sector is vulnerable somewhat to rising interest rates as a significant amount of current debt is variable vs. fixed. Quick rate increases place loan covenants at-risk for default.
While I see an end to Fed rate hikes, I don’t see an end to inflation in the near term. With recent CPI (Core inflation too) running around 5% and the Fed funds rate, at 5% to 5.25%, we may see a “hold” period while the Fed waits for the lag effects to further diminish inflation. What is for certain, the current economic conditions will be significantly impactful for the healthcare/senior housing industries for the balance of 2023.
Employment/Labor: For all of healthcare, this is a major concern as demand exceeds supply in nearly all categories of employment and most acutely, for bedside/direct patient care staff. A possible recession and other industry slowdown will benefit healthcare and senior living via increased numbers of non-clinical staff needing work, but that same effect won’t move the supply “needle” on clinicians, especially nursing.
The trend here that I am watching is a bit nuanced. I’m watching the regulatory responses around staffing mandates, particularly in senior living/skilled nursing. The Biden administration has said, along with the 2024 SNF PPS rule that a staffing standard is forthcoming. We have yet to see it but states, such as Connecticut are somewhat ahead of the Feds. But, as of late, reality is beginning to settle-in; namely, the funding cost reality. Connecticut posed a per day increase in hours per patient from 3 to 4.1, along with ratios for certain positions. Both long-term care associations lobbied against the bill stating that while desirable for the industry to accomplish these levels, the reality is that supply won’t allow it. The state Office of Fiscal Analysis said the bill would require an increase in Medicaid spending by $26.6 million in 2025 and $15.5 million in 2026 and 2027.
Pennsylvania ticked-up staffing levels from 2.7 hours per day to 2.87, starting July 1. In July of 2024, the hours per day requirement jumps to 3.2 hours (direct care) per patient. Even though Pennsylvania increased its Medicaid reimbursement by 17.5% in 2017, funding woes for providers still persist. The genesis of the staffing level mandate is a report completed by the Pennsylvania State Government Commission. It noted that working conditions, training and career development were sorely needed to combat negatives about work in long-term care. The report further noted that long-term care spending needed an annual investment of $99.9 million to cover the cost of services which, translates to $12.50 per patient day increase or a Medicaid reimbursement rate of $263.05.
Finally, within the employment/labor trend, I’m watching legislative activity around staffing agencies and specifically, a move to cap the mark-ups that agencies can charge providers. Pennsylvania, in its report (noted) above, noted the rapid increase in agency costs to providers resulting from the pandemic and yet, the limited impact the fee increases matriculated to staff in the form of wages. A recently passed Indiana law includes a provision limiting “predatory practices” by agencies, specifically, price gouing. Minnesota is also working on legislation to increase funding and to in some ways, attempt to address staffing inadequacies.
Patient Transitions/Care Transitions: I’m continuing to watch the post-acute flow dynamics or the admission/transition referrals from hospitals to post-acute providers. My specific focus is on home health which seems to be struggling the most to sustain a referral dynamic that has home care preference but can’t be accommodated by home health agencies. The benefactor of this referral trend is the SNF industry. In a report from Trella Health for 3rd quarter 2022, the SNF industry saw a referral increase of 5.8% (YOY) and the home health industry saw a 8.6% decrease. Hospice referrals remained essentially unchanged. The data is for Medicare Fee-for-Service patients (traditional Medicare), excluding Medicare Advantage referrals. With the growth of Medicare Advantage, I expect to see a continued preference toward home/community discharges yet, staffing levels will dictate how this preference is realized. While home health has a distinct advantage in cost and desire by the patient typically, the setting has challenges to accommodate volume. Productivity levels are currently near the max for many agencies and thus, referral denials are at record levels.
Happy Mother’s Day to all moms and expecting moms, everywhere!
Top 5 Tips for Recruiting in a Tough Labor Market
I’ve done a number of presentations on the staffing challenges facing providers and how, certain strategies work and others don’t in terms of recruitment and retention. Over my 30 plus years in the industry, I’ve had reasonable (ok, very good) success in building and retaining high-performing teams, including direct care staff. I’ve been fortunate to have many folks who have worked with me, follow me from assignment to assignment, some across the country. Leadership is no doubt key to recruiting successfully as people want to work with winning organizations. Likewise, really good recruiting strategies don’t use the same methodology as the past – namely advertise, incent (throw money at it), repeat. Steve Jobs said it best: “Innovation is the only way to win”.
Most healthcare providers can’t financially compete for staff, consistently. In reality though, staff only work for money when they see no long-term value in the employment proposition. I know travel nursing and agency nursing catch lots of news and sound sexy and high paying. I also know nurses (really, really well as the same are throughout my family) and, the lure of travel nursing is short, regardless of the money. Stability, home base, regularity, working with good colleagues and peers has more value to most nurses.
Before I offer my five “DOs” for recruiting, let me offer a few “DON’Ts” and a reminder. The reminder is recruiting is like marketing – it requires constant, incremental effort to achieve success. Superb marketing campaigns and brands build year-over-year. One misstep, however, can damage a brand significantly (see Bud Light). The “don’ts” mostly focus on money as in don’t think you can buy staff and don’t think, sign-on bonuses buy anything other than applications and temporary workers. Don’t focus on the economic alone but on the goal of recruiting. Like marketing, it’s about positioning the organization to attract workers. The sale or close comes via an H.R. specialist or someone exceedingly good in the organization of convincing people of the value of working for the organization.
My Top 5 tips for recruiting are….
- Focus on recruiting introductory, PRN workers first. Stop advertising for shifts, full-time, part-time, etc. Focus on people who are interested in flexible work and are willing to take a role and see how it goes. This is the “dip your toe in the water” insight. Be prepared to pay well but not necessarily crazy. You won’t be dealing with many if any benefits for this group other than some soft stuff (meals perhaps, incentive rewards like a gift card now and then, t-shirts) so hourly rates can be decent. Likewise, be prepared to pay weekly if not even more frequently.
- Have a killer, multi-media/onboarding/orientation program. Little investment here but not much. YouTube, Tik Tok (can’t believe I wrote that), a website, and other applications can be used to recruit (what it’s like to work for us) and to onboard and orient. The more new staff, even your PRN, feel comfortable walking in the door, the easier it will be to get them and keep them. Giving them a stack of policies and procedures, a big manual, a drone-on HR speaker or a computer-based checklist is a certain turnoff.
- Give the Bonus to the Staff. Turn your own staff into recruiters and pay them for it. Nurses know nurses, CNAs know CNAs, etc. Comp and incent them to bring referrals and comp them well. Sign-on bonuses really don’t work but referral bonuses do. Heck, do individual and team and create a bit of competition and fun.
- Create a Marketing Campaign and Have Accountability. Recruiting is marketing. Stop thinking otherwise. Sure, many think it’s an HR function but most who do, are wrong. It’s an organization function today requiring the best talent. For people to join your organization as employees, they need to know “why” – what are the tangibles and intangibles. Why should I work for you? This is not about pay and benefits but about the value and benefit internally, of a person working for XYZ organization. What’s the value proposition? What’s the real reason people work and stay for an organization (trust me, it’s not money). Build the case and sell that case.
- Get out of your own way. I watch organizations fail as their message is all wrong – tired, non-descript, sounding like everyone else. I watch organizations fail as their environment and their culture are all the same. Stop and align the incentives. Reward what matters and differentiate. Remember the Jobs quote in the first paragraph. Innovate. Stop looking externally at what everyone else is doing and stop going to the same conference sessions. Direct care staffing has certain red rules but not as many as providers think. In other words, stop the “can’t, regulations won’t let us” and start with WHAT can we do. Maybe even bend a rule or two if the same doesn’t jeopardize patient care or quality. Worklife for nurses and CNAs in terms of direct care has lots of negatives but many that I see are driven by provider foolishness – too much paperwork not necessary, too many meetings not necessary, and very few positive touches and rewards. If your culture and the work create fun, ownership, and staff love their work and their company, recruiting others to join the team just got that much easier.
Upcoming, I’ll touch on the opposite of recruiting – retention.
Hospice Proposed Rule – 2024
Just about a week ago, CMS released their proposed payment rule for hospices, effective for the Federal Fiscal Year of 2024, beginning October 1, 2023. As readers likely know, these proposed rules are more than just payment rates, incorporating certain regulatory requirements that pertain to the program and Medicare participation (for providers). The rules are subject to change and often, end-up somewhat modified. In most cases however, one can get a pretty good feel for the final “macro” events – rate and programmatic changes to getting a provider, reimbursed for the work it did.
As has been the trend with all Medicare programs, rate is noted as “gross” then subject to certain offsets. The offsets are typically, changes in the labor regions, market baskets (inflation), and the dreaded “multi-factor productivity adjustments”. Each of these elements singular or in combination can influence the final rate providers receive. Note: Initial payment rate updates are basically internally modeled CMS rates, times the market basket calculated inflation.
For Hospice, the market basket inflated rate projected for 2024 is 3.0% – increase. The net rate, after the productivity factor adjustment of .2% is applied is 2.8%. The aggregate cap (max payable to a hospice patient per year) inflates as well by 2.8%, from $32,486.92 to $33,396.55.
Now, the rub for 2024 in this proposed rule is the penalty hospices will receive for failing to meet quality reporting requirements. CMS is recommending that the penalty move from 2% to 4%. This would provide a deficient hospice (not meeting quality reporting requirements) with a rate reduction equal to -1.2% (2.8 – 4.0). CMS indicates that it will provide updates to the HQRP (quality reporting) data reporting periods along with updates on new quality measures and the HOPE patient assessment (Hospice Outcomes and Patient Evaluation) development.
Part of this proposed rule incorporates the end of the COVID -19 public health emergency, slated for May 11. As such, certain elements within the emergency are updated within the proposed rule. Telehealth is one such element impacted. In the rule, CMS is proposing to end the allowance of telehealth routine visits on May 12, 2023, but continuing the allowance of routing home care certifications via telehealth until 12/31/2024 (yes, through the end of 2024).
In an effort to address what is believed to be, on the part of CMS, increasing hospice fraud, CMS is proposing that physicians or permitted providers that can certify patients for hospice, be participating Medicare providers or have validly opted out of the program for the certification period of the patient.
The proposed rule incorporates a fair amount of statistical data on utilization and program growth. Without questions, CMS is concerned about program integrity and in particular, the growth of for-profit agencies. States that have raised suspicion with rapid growth are Texas, Arizona, California, and Nevada. California took action to restrict new agency growth, creating a moratorium. At issue? Hospices where the license location includes more than one hospice, management working at more than one agency simultaneously (a no-no) and concerns about legitimacy of certification of cases. To note however, this issue is not new within the hospice industry as even the large providers (e.g., VITAS) have come under scrutiny for inappropriate certifications, long-lengths of stay within institutional settings, etc.
The fact sheet for the proposed rule is here: https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2024-hospice-payment-rate-update-proposed-rule-cms-1787-p
Home Health and Hospice: Strategic Movement in an Evolving Market
Last year 2017, was a bit of a “downer” in terms of mergers/acquisitions in the home health and hospice industry. Though 2017 was fluid for hospital and health system activity, the home health and hospice sectors lagged a bit. Some of the lag was due to capacity concerns in so much that health system mergers, if they involve home health as part of the “roll-up”, take a bit of sorting out time to adjust to market capacity changes (in markets impacted by the consolidations). The additional drag was attributable to CMS proposing to change the home health payment from a per visit function to a process driven by patient characteristics – after implementation, a net $950 million revenue cut to the industry. CMS has since scrapped this proposed payment revision however, the future foreshadows payment revisions nonetheless including changing to some format of a shorter episode window for payment (ala 30 days).
Hospice has always been a bit of niche in terms of the post-acute industry. Where consolidation and merger/acquisition activity occurs, it is most often fueled by a companion home health transaction. De Novo hospice “only” activity of any scale has been steady and unremarkable, save regional and local movement. From a reimbursement and policy implication standpoint, hospice has been far less volatile than home health. Minor changes in terms of scaling payment levels by length of stay have only marginally impacted the revenue profile of the industry. What continues to impact hospice patient flow is the medical/health care culture within the U.S. that continues to be in steep denial regarding the role of palliative medicine/care and end-of-life care, particularly for advanced age seniors. Sadly, too many seniors still pass daily in expensive, inpatient settings such as hospitals and nursing homes (hospitals more so), racking up bills for (basically) futile healthcare services. If and when this culture shifts, hospice will see expansion in the form of referrals and post-acute market share.
Despite somewhat (of) a tepid M&A climate in 2017, the tail-end of the year and early 2018 provided some fireworks. Early 2018 is off to the races with some fairly large-scale consolidations. In late 2017, LHC group and Almost Family announced their merger, recently completed. Preceding this transaction in August, Christus Health in Texas formed a joint venture with LHC, encompassing its home health and hospice business (LTAcH too). Tenet sold its home health business to Amedysis (though not a major transaction by any means). And, Humana stepped forward to acquire Kindred’s Home Health business.
In the first months of 2018, Jordan, a regional home health and hospice business in Texas, Oklahoma, Missouri and Arkansas, announced a merger with fellow regional providers Great Lakes and National Home Health Care. The combined company will span 15 states with over 200 locations. In other regions, The Ensign Group, primarily a nursing home and assisted living provider continues to expand into home health and hospice via acquisitions; primarily underperforming outlets that have market depth and need restructuring. Former home health giant Amedysis continues to redefine its role in the industry via additions of agencies/outlets in states like Kentucky. Amedysis, once the largest home health provider in the nation, fell prey to congressional inquiries and regulatory oversight regarding suspected over-payments and billing improprieties. Having worked through these issues and shrinking its agency/outlet platform to a leaner, more core and manageable level, Amedysis is now growing again, though less for “bigger” sake, more for strategy sake.
Given the preceding news, some trends are emerging for home health in particular and a bit (quite a bit) less so for hospice. Interestingly, one of the trends apparent for home health has been present for hospitals, health systems, and now starting, skilled nursing: there is too much capacity, somewhat misaligned with where the market needs exist. I believe this issue also exists for Seniors Housing (see related post at https://wp.me/ptUlY-nA ) but the drivers are different as limited regulation and payment dynamics are at play for Seniors Housing. While home health is no doubt, an industry with continued growth potential as more post-acute payment and policy drivers favor home care and outpatient over institutional options, capacity problems still exist. By capacity I mean too many providers wrongly positioned within certain markets and not enough providers properly positioned to deliver more integrated elements of acute and post-acute, transitional services in expanding markets (e.g., Washington D.C., Denver, Dallas, etc.).
Prior to their final consolidation with Humana, Kindred provided an investor presentation explaining their rationale for exiting the home health business (somewhat analogous to their exit rationale from skilled nursing). The salient pages are available at this link: Kindred Investor Pres 2 18 . Fundamentally, I think the underpinnings of the argument beginning with the public policy and reimbursement dynamics which are extrapolated against a “worse-case” backdrop (MedPac recommendations don’t equate to Congressional action directly nor do tax cuts equate directly to Medicare reimbursement cuts) get lost to the real reason Kindred exited: excess leverage. Kindred was overly leveraged and as we have seen with all too many like/analogous scenarios, excessive overhead and fixed costs in a tight and competitive market with sticky reimbursement dynamics and risk concentration on Medicare beget few strategic options other than shrink or exit.
With the backdrop set, the home health environment is at an evolutionary pass – the fork-in-the-road applies for many providers: bigger in scale or focused regionally with more network alignment required (aka strategic partnerships). I think the following is safe to conclude, at least for this first half of 2018.
- The M&A driver today is strategy and market, less financial. While financial concerns remain due to some funky (technical term) policy dynamics and reimbursement unknowns, the same are more tame than 12-18 months ago. To be certain, financial gain expectations are part of every transaction, just less impactful in terms of motivation.
- The dominant strategic driver is network alignment: being where the referrals are. The next driver is “positioning” as a player managing population health dynamics. Disease management focus is key here.
- Medicare Advantage penetration is re-balancing patient flow in many markets. As the penetration escalates above 50% (half or better of all Med A days coming from Med Advantage), the referral flows are shaping to more demand for in-home care (away from institutional settings), shorter lengths of stay across all post-acute segments, increasing complexity and acuity on transition, and pay-for-performance dynamics on outcomes (particularly, re-hospitalization).
- Market locations are key and very, very strategic. With home health, being able to channel productivity, especially in a low labor supply/high demand environment, is imperative. Being proximal to referrals, being tight with geographic boundaries, being able to lever staff resources, and being able to deploy technology to enhance efficiency is operationally, imperative.
- Partnerships are synergistic today and in-flux. It used to be that a key partner was an acute hospital. Today, the acute hospital remains important but not necessarily, primary. With physicians starting to embrace ACOs and Bundled Payment models, the referral relationship most preferred may be direct agency to doctor. In fact, the hospital partner may not be anywhere near as valuable as the surgical center partner, owned and controlled by physicians.
- Capacity and capability to bear risk from a population management perspective and to accept patients with higher acuity needs (in-home) and broader chronic conditions. Effectively, home health agencies are going to continue to feel pressure to take patients with multiple chronic needs and comorbidities and to coordinate these care needs across perhaps, two to three provider spectrums (outpatient, specialty physicians, hospice if required, etc.).
SNF Fortunes, HCR/Manor Care and Salient Lessons in Health Care
Long title – actually shortened. In honesty, I clipped it back from: SNF Fortunes, HCR/Manor Care, Five Star, Value-Based Payment, Hospitals Impacted Too, Home Health and Hospice Fortunes Rise, and all Other Salient Lessons for/in Health Care Today. Suffice to say, lots going on but almost all in the category of “should have seen it coming”. For readers and followers of my site and my articles and presentations/speeches, etc., this theme of what is changing and why as well as the implications for the post-acute and general healthcare industry has been discussed in-depth. Below is a short list (not exhaustive) of other articles I have written, etc. that might provide a good preface/background for this post.
- https://rhislop3.com/2017/05/04/snf-outlook-reits-kindred-and-where-to-from-here/
- https://rhislop3.com/2017/03/28/health-systems-hospitals-and-post-acute-providers-making-integration-work/
- https://rhislop3.com/2017/02/15/impact-act-vbp-care-coordination-and-the-snf-landscape/
- https://rhislop3.wordpress.com/wp-admin/post.php?post=1323&action=edit
- https://rhislop3.com/2016/09/14/post-acute-providers-and-narrow-networks-join-form-or-wait/
- https://rhislop3.com/2015/05/12/snfs-a-new-era-in-post-acute-care-begins/
- https://rhislop3.com/2016/10/13/conference-presentation/
Maybe a better title for this post is the question (abbreviated) that I am fielding daily (sometimes thrice): “What the Heck is Going On?” The answer that I give to investors, operators, analysts, policy folks, trade association folks, industry watchers, etc. is as follows (in no particular order) HCR/Manor Care: This could just as easily be Kindred or Signature or Genesis or Skilled Healthcare Group…and may very well be in the not too distant future. It is, any group of facilities, regardless of affiliation, that have been/are reliant on a significant Medicare (fee for service) census, typified by a large Rehab RUG percentage at the Ultra High or Very High level with stable to longer lengths of stay to counterbalance a Medicaid census component that is around 50% of total occupancy. The Medicaid component of census of course, generates negative margins offset by the Medicare margins. For this group or sub-set of facilities in the SNF industry, a number of factors have piled-on, changing their fortune.
- Medicaid rates have stayed stable or shrunk or state to state conversions to Managed Medicaid have slowed payments, added bureaucracy, impacted cash flows, etc. This latter element in some states, has been cataclysmic (Kansas for example).
- Managed Medicare has (aka Medicare Advantage plans) increased in terms of market share, shrinking the fee-for-service numbers. These plans flat-out pay less and dictate which facilities patients use via network contracts. They also dictate length of stay. In some markets such as the Milwaukee (WI) metro market, almost 50% of the Medicare volume SNFs get is patients in a Medicare Advantage plan.
- Value-Based Care/Impact Act/Care Coordination has descended along with bundled payments in and across every major metropolitan market in the U.S. (location of 80 plus percent of all SNFs). This phenomenon/policy reality is dictating the referral markets, requiring hospitals to shift their volumes to SNFs that rate 4 Stars or higher. The risk of losing funds due to readmissions, etc. is too great and thus, hospitals are referring their volumes to preferred environments – those with the best ratings. The typical HCR/Manor Care facility is 3 stars or less in most markets.
- Overall, institutional use of inpatient stays is declining, particularly for post-acute stays. Non-complicated surgical procedures or straight-forward procedures (hip and knee replacements, certain cardiac procedures, other orthopedic, etc.) are being done either outpatient or with short inpatient hospital stays and then sent home – with home health or with continuing care scheduled in an outpatient setting. Medicare Advantage has driven this trend somewhat but in general, the trend is also part of an ongoing cultural and expectation shift. Patients simply prefer to be at home and the Home Health industry has upped its game accordingly.
Adding all of these factors together the picture is complete. Summed up: Too much Medicaid, an overall reduction in Medicare volume, an overall reduction in length of stay, and a shift in the referral dynamics due to market forces and policy trends that are rewarding only the facilities with high Star ratings. That is/will be the epitaph for Manor Care, Signature, etc.
Five Star/Value-Based Care Models, Etc.: While many operators and trade associations will say that the Five Star system is flawed (it is because it is government), doesn’t tell the full story, etc., it is the system that is out there. And while it is flawed in many ways, it is still uniformly objective and its measures apply uniformly to all providers in the industry (flaws and all). Today, it is being used to differentiate the players in any industry segment and in ways, many providers fail to realize. For example, consumers are becoming more savvy and consumer based web-sites are referencing the Five Star ratings as a means for comparison. Similarly, these same consumer sites are using QM (quality measure) data to illustrate decision-making options for prospective residents. Medicare Advantage plans are using the Five Star system. Hospitals and their discharge functions use them. Narrow networks of providers such as ACOs are using them during and after formation. Banks and lenders use the system today and I am now seeing insurance companies start to use the ratings as part of underwriting for risk pricing (premiums). Summed up: Ratings are the harbinger of the future (and the present to a large extent) as a direct result of pay-for-performance and an ongoing shift to payments based on episodes of care and via or connected to, value-based care models (bundled payments, etc.). Providers that are not rated 4 and 5 stars will see (or are seeing) their referrals change “negatively”.
Home Health and Hospice: The same set of policy and market dynamics that are adversely (for the most part) impacting institutional providers such as SNFs and hospitals is giving rise to the value of home health and hospice. Both are cheaper and both fit the emerging paradigm of patients wanting options and the same being “home” options. Hospice may be the most interesting player going forward. I am starting to see a gentle trend toward hospices becoming extremely creative in their approach to developing non-hospice specific, delivery alternatives. For example, disease management programs evolving within the home health realm focused on palliative models, including pain and symptom management. Shifts away for payment specific to providers ala fee-for-service will/should be a boon for hospices. The more payment systems switch to episode payments, bundled or other, the more opportunity there is for hospices to play in a broader environment, one that embraces their expertise, if they choose to become creative. Without question, the move toward less institutional care, shorter stays, etc. will give rise to the home care (HHA and hospice) and outpatient segments of the industry. As fee-for-service slowly dies and payments are less specific (post-acute) to place of care (institutional biased and located), these segments will flourish.
Hospitals Too: The shift to quality providers receiving the best payer mix and volume and payments based on episodes of care, etc. is impacting hospitals too. This recent Modern Healthcare article highlights a Dallas hospital that is closing as a result of these market and policy dynamics: http://www.modernhealthcare.com/article/20170605/NEWS/170609952?utm_source=modernhealthcare&utm_medium=email&utm_content=20170605-NEWS-170609952&utm_campaign=dose
REITs, Valuations, M&A, and the Investment World: As we have seen with HCR/Manor Care and Signature (likely others soon), REITs that hold significant numbers of these SNF assets have a problem. These companies (SNF) can no longer make their lease payments. Renegotiation is an option but in the case of Signature, the coverage levels are already at 1 (EBITDAR is 1 to the lease obligation). IF and I should say when, the cash pressure mounts just a bit more, the coverage levels will need to fall below 1. This significantly impacts the REITs earnings AND changes the valuation profile of the assets held. What is occurring is their portfolio values are being “crammed” down and the Return on Assets negatively impacted. And for the more troubling news: there is no fluid market today to offload underperforming SNF assets. Most of the Manor Care portfolio, like the Genesis and Skilled Healthcare and Kindred portfolios, is facilities that are;
- Older assets – average age of plant greater than 20 years and facilities that were built, 40 years or more ago. These assets are very institutional, large buildings, some with three and four bed wards, not enough private rooms and even when converted to all private rooms, with occupancy greater than 80 or so beds with still, very inefficient environments. Because so few of these assets have had major investments over the years and the cash flow from them is nearing negative, their value is negligible. There are not buyers for these assets or operators today that wish to take over leases within troubled buildings with high Medicaid, low and shrinking Medicare, compliance (negative) history, etc. Finally, the cost to retrofit these buildings to the new paradigm is so heavy that the Return on Investment (improved cash earnings) is negative.
- Three Star rated or less with fairly significant compliance challenges in terms of survey history. Star ratings are not easy to raise especially if the drag is due to survey/compliance history. This Star (survey) is based on a three-year history. Raising it just one Star level may take two to three survey cycles (today that is 24 to 36 months). In that time, the market has settled again and referral patterns concretized – away from the lower rated providers.
- In the case of Manor Care, too many remain or are embroiled or subject to Federal Fraud investigations. While no one building is typically (or at all) the center of the issue, the overhang of a Federal investigation based on billing or care impropriety negatively impacts all facilities in terms of reputation, position, etc.
As “deal” volumes have shrunk, valuations on SNF assets are getting funky (very technical term). The deals that are being done today are for high quality assets with good cash flow, newer buildings or even speculative deals on buildings with no cash flow (developer built) but brand-new buildings in good market locations. These deals are purchase and operations (lease to operators and/or purchased for owner operation). Cap rates on these deals are solid and range in the 10 to 12 area. Virtually all other deals for lesser assets, etc. have dried up.
Final Words/Lessons Learned (or for some, Learning the Hard Way): As I have written and said ad nausea, the fee-for-service world is ending and won’t return. Maximizing revenue via a focal opportunity to expand census by a payer source, disconnected from quality or services required, is a defunct, extinct strategy. That writing was on the wall years ago. Today is all about efficient, shorter inpatient stay, care coordination, management of outcomes and resources and quality. The only value provider assets have is if they can or are, corollary to these metrics. By this I mean, an SNF that is Five Stars with modern assets and a good location within a strong market has value as does the operator of the asset. An SNF that is Two Stars with an older building, a history of compliance problems, regardless of location, 50 percent Medicaid occupied has virtually no value today…or in the future. Providers that can network or have an integrated continuum (all of the post-acute pieces) are winning and will win, especially if the pieces are highly rated. Moreover, providers that can demonstrate high degrees of patient satisfaction, low readmission rates, great outcomes and shorter lengths of stay are and will be prized. The world today is about tangible, measurable outcomes tied to cost and quality. There is no point of return or going back. And here’s the biggest lesson: The train has already left the station so for many, getting on is nearly impossible.
Hospice, Hospital Readmissions and Penalty Implications
Late yesterday, a reader (who also happens to be a client from time to time), posed this question to me. “When hospitals discharge to hospice and if the hospice has to readmit to the hospital, the hospital doesn’t get penalized for the readmit? Is this true?” Since this question is not one that I have been asked, to my recollection, ever before my guess is that others may have a similar query or interest. My answer to him/the question, follows.
The short answer is that the readmission penalty issue is not applicable for a hospice to acute hospital transfer/admission. There is one single caveat that must be present, however: The patient in question must be on the Medicare Hospice benefit rather than traditional Part A and receiving services under some other Hospice offered program such as a Palliative Care program (a home health care style offering). Below is the reason and regulatory/legal construct why the readmission penalty is not applicable.
- When a patient elects and is qualified under the Medicare Hospice benefit, the patient opts (effectively) out of his/her traditional Medicare benefit structure – including the assumed coverage for inpatient hospital coverage offered under Medicare Part A.
- The issue or applicability for readmission penalties for hospitals is only under traditional Medicare fee-for-service or qualified Medicare Advantage plans It is also only applicable to certain originating DRGs (not all readmissions qualify for a penalty).
- When a patient enrolls in the Medicare Hospice benefit, the assumptive relationship under Medicare with regard to the patient and his/her provider relationship changes. The assumption becomes that the patient is effectively, now the “property” (bad word choice but illustrative nonetheless) of the Hospice. This is so much so that no patient can receive the Hospice benefit under Medicare without becoming a patient of a qualified, certified Hospice provider. Unlike the relationship under traditional or managed Medicare, the patient care is thus the property and coordinated responsibility of the Hospice. Prior to enrollment, the patient had no connective relationship to any provider – free (for the most part) to seek care from any qualified provider (Med Advantage networks notwithstanding).
- By his/her enrollment in the Hospice benefit with a Hospice, the patient agrees to a set of covered benefits tied to his/her end-of-life care needs. He/she also elects to have his/her care effectively provided by or through the Hospice exclusively. In fact, the patient can’t really show-up at a hospital for an admission and expect to be admitted, without the approval of the Hospice. The only option a patient has to receive care in this fashion is to “opt out” of the Hospice benefit.
- Once a patient is enrolled in Hospice, there effectively is no “hospital” benefit left. The use of a hospital by a Hospice patient is through the Hospice exclusively and any hospital or inpatient use is (only) technically via a GIP or other contracted event/need. In fact, the hospital has no DRG or admission code nor records the GIP stay as a “hospital” admission. It (the hospital) can’t create a bill to Medicare for this event and must seek all payment through the Hospice. As no bill is generated to Medicare Part A with a corresponding DRG and billing code, no inpatient admission occurred and thus, no readmission occurs either applicable (or not) for a penalty.
Like most things Medicare, you won’t find a succinct “memo” to this effect. Instead, you have to know and go through the detail on the program benefit side and understand how billing, coding and benefit eligibility/program payments work for each provider segment.
The Supreme Court, False Claims Act, and Implications for Providers
Nearing the end of the Supreme Court session, the Court issued an important clarification ruling concerning the False Claims Act in cases of alleged fraud. In the Universal Health Services case, the Court addressed the issue of whether a claim could be determined as fraudulent if the underlying cause for fraud was a lack of professional certification or licensing of a provider that rendered care related to the subsequent bill for services. In the Universal case, the provider submitted claims to Medicaid and received payment for services. The services as coded and billed implied that the care was provided by a licensed and/or qualified professional when in fact, the care was provided by persons not properly qualified. In this case, the patient ultimately suffered harm and death, due to the negligent care.
The False Claims Act statute imposes liability on anyone who “(a) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; or (b) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” It defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” And it defines “knowingly” as “actual knowledge; … deliberate ignorance; … or reckless disregard of the truth or falsity of the information; and … no proof of specific intent to defraud is required.” The last element is key – no proof of intent to defraud is required.
Though providers sought a different outcome, the initial review suggests the decision is not all that bold or inconsistent with other analogous applications. The provider community hope was that the Court would draw a line in terms of the expanse or breadth of False Claims Act “potential” liabilities. The line sought was on the technical issue of “implied certification”; the notion that a claim for services ‘customarily’ provided by a professional of certain qualifications under a certain level of supervision doesn’t constitute fraud when the services are provided by someone of lesser professional stature or without customary supervision, assuming the care was in all other ways, properly provided. The decision reinforces a narrow but common interpretation of the False Claims Act: An action that would constitute a violation of a federal condition of participation within a program creating a condition where the service provided is not compliant creates a violation if the service was billed to Medicare or Medicaid. Providers are expected to know at all times, the level of professional qualifications and supervision required under the applicable Conditions of Participation.
The implications for providers as a result of this decision are many. The Court concretized the breadth of application of the False Claims Act maintaining an expansive view that any service billed to Medicare and/or Medicaid must be professionally relevant, consistent with common and known professional standards, within the purview of the licensed provider, and properly structured and supervised as required by the applicable Conditions of Participation. Below are a few select operational reminders and strategies for providers in light of the Court’s decision and as proven best-practices to mitigate False Claims Act pitfalls.
- One of the largest risk areas involves sub-contractors providing services under the umbrella and auspices of a provider whereby, the provider is submitting Medicaid or Medicare claims. In these instances the provider that is using contractors must vet each contractor via proper credentialing and then, provide appropriate and adequate supervision of the services. For example, in SNFs that use therapy contractors the SNF must assure that each staff member is properly licensed (as applicable), trained to provide the care required, and the services SUPERVISED by the SNF. Supervision means actually reviewed for professional standards, provided as required by law (conditions of participation), properly documented, and properly billed. The SNF cannot leave the supervision aspect solely to the therapy contractor.
- Providers must routinely audit the services provided, independently and in a structured program. Audits include an actual review of the documentation for care provided against the claim submitted, observations of care provided, and interviews/surveys of patients and/or significant others with respect to care and treatment and satisfaction.
- Establish a communication vehicle or vehicles that elicits reactions to suspicious activity or inadequate care. I recommend a series of feedback tools such as surveys, focus groups, hotlines and random calls to patients and staff. The intent is to provide multiple opportunities for individuals, patients, families and staff to provide information regarding potential break-downs in care or regarding outright instances of fraud.
- Conduct staff training on orientation and periodically, particularly at the professional level and supervisory level. The training should cover organizational policy, the legal and regulatory framework that the organization operates within, and case examples to illustrate violations plus remedy steps.
Health Care Leadership: Why its Hard, Why Many Fail and What it Takes to Succeed
The bulk of my work centers around gathering data, analyzing trends and working with the leadership of various organizations to implement strategy or more centered, strategies. The process is iterative, interactive and always fascinating. Throughout my career, I’ve worked within (virtually) every health care industry segment and seniors housing segment. I also counsel and have worked with entities that buy, sell, invest in, consult with, account for, finance, and research health care and seniors housing businesses. Its my work with the latter that is the genesis of this post and my decades of work with the former that is the “content”.
There are two fundamental reasons why health care leadership is hard and different from leadership duties in other industries: 24/7 demands and the immediacy of the customer to the enterprise. Health care and seniors housing (regardless of the segment specific) never closes, has no true seasonality, and demand can increase and decrease with equal force and equal pace, almost entirely related to external factors and forces. Pricing for the most part, other than seniors housing, is almost immaterial and unrelated to revenue. No other, non-governmental, business is as regulated and scrutinized and mandated transparent than health care. Likewise, no other business has the mandate that the full array and intensity of all services must be available 24/7, on immediate demand, with no ability to defer, fallow, or limit. Even a 24 hour PDQ won’t have all services available constantly (if the hot dogs run out, they are gone!).
While other industries will have close customer contact, health care has a unique, and intimate relationship with its customers. In SNFs, Assisted Living Facilities, Seniors Housing, etc. the customer is present for long-periods (years). In hospitals, the customer is present for hours, days, up to weeks at a time (the latter rare unless we are talking LTAcH). In the health care setting, the enterprise has total responsibility for all needs of the customer – great to small. The quality of care and service to all needs matters and is measured, reported and today in many regards, tied to compensation. Back to the PDQ, the over-done hot dog costs the same and there is no governmental entity that maintains a hotline for customer reports and investigations regarding the quality of the hot dog.
In health care, there is a very unique and in many ways, perverted twist concerning the customer relationship. The customer today is a Dr. Jekyll/Mr. Hyde manifestation. No other industry has customers that are bifurcated as such – the payer being a consumer unique and separate from the actual present being. Health care entities, to be successful, must satisfy both and manage the expectations of both, seamless and fluid to each party. I know of no other industry where on any given day in a hospital for example, where it is likely that of 300 individual inpatients there are dozens more of the payer/insurer consumers requiring unique attention, simultaneously. Miss a step, miss a form, etc. and the payer consumer refuses to pay for the human consumer that is receiving or received the care.
Because of the “constant” nature and customer relationships (coupled with many other reasons of course), health care leadership is hard. It is hard because these two fundamental components are nearly, completely, out of the control of the leader. The leader can only react or respond but truly, never change the paradigm or structure and always, in terms of the payer customer, sit beholding to the rule changing process and bureaucracy of the payer customer. This last element can be unbelievably insidious. For example, in the State of Kansas, dozens of SNFs face grave peril in terms of solvency because the State cannot efficiently certify eligibility for Medicaid for qualified seniors. The delay has left dozens of facilities with Medicaid IOUs at six digits and climbing – the human customer receiving care, the paying customer bureaucratically inept and unwilling and incapable of paying its bills, and the SNF sitting with no real recourse.
Given the above, its frankly easy to see why so many leaders fail or simply, give up. The deck is stacked toward failure. On the expense side of the equation, because of mounting regulation, fewer elements are within a leader’s control. With a rare exception, revenue is completely beyond control in terms of price and reimbursement for services provided. With RAC and other audits, revenue initially earned can be retrospectively recast and denied. (The PDQ six month’s later decides to recoup payment for the hot dog because, in its infinite wisdom, you didn’t need to the eat the hot dog or you should have made a wiser food choice). The overwhelming variables that can contribute to failure in a micro and macro sense for a leader are not lessening. His/her organization is open and under scrutiny, 24/7. He/she must oversee and be accountable for the health outcomes of a human customer that in turn are interpreted by the payer customer (remotely), subject to alteration, and retroactive scrutiny. Today, success isn’t just based on what occurred at the point of service but after the service concluded. The enterprise is at-risk for human behavior (compliance and non-compliance) of the consumer for not just days post service but months. Further, the enterprise is at-risk for the satisfaction of a consumer whose behavior and lifestyle may have significantly contributed to his/her need for care and service initially. As one executive told me recently; “We have to tell people the truth about their disease, figure out how to make it sound good and nice, and hope that we have done so in such a life affirming fashion that the patient will give us 5 stars for service. Figure that one out”. Alas, perhaps failure is inevitable.
Aside from failure correlating to burn out or shear “giving up” (the average large system executive tenure is less than 10 years), the failure in leadership that I see resides primarily in two areas. The first is an inability or lack of willingness to realize that the paradigm is constantly changing today and the pace of which, is accelerating. It is human nature to seek equilibrium; to pursue elements of stasis and calm. The same ( is) anathema to leading a health care enterprise. The second area is aversion to risk. Precisely because of the first point, taking risk or being capable of tolerating large elements of risk is imperative today in health care. The best leaders are true entrepreneurs today. They see opportunity and are willing to pursue it with vigor. They find the niches and pursue them. Every bureaucracy and rapidly changing industry paradigm begets opportunity with equal pace and ferocity. For example, the growing “private, non-reimbursed” service sectors in health care that continue to grow and flourish because of and in-spite of the heavily regulated, price tied market. I know of and have consulted for, provider groups that have moved further away from Medicare and managed care to private payment with phenomenal success. Was the strategy a risk? Yes. Most would not take this type of risk. I am harkened however by the notion that at times, the greatest risk present is the risk of doing nothing.
Successful leadership and leaders today, those that I know, have the ability to think systematically and algebraically – to solve the industry polynomials with all of the variables. They are inquisitive by nature and unwilling to accept the status quo, regardless of where and why. They embrace the famed Pasteur quote: “Chance (luck) favors the prepared mind”. They also have the soul and panache (tempered) of Capt. Jack Sparrow (from Pirates of the Caribbean). They like risk and have the entrepreneurial heart and mind to innovate and move fluidly through problems and challenges such that the same are opportunities. They don’t allow their enterprises to become complacent or bureaucratic.
Today, success is about better – better products, better service, and better care. Payers are demanding accountability and want an increasing level of care and service for lower levels of payment. That is the paradigm and it is moving to higher levels of accountability and lower levels of overall payment. The best execs know this and don’t quibble with it (much). They realize that success if about adapting the enterprise accordingly while finding the pliable spots that such an environment creates. These spots are service lines, system enhancements, productivity improvements, and different levels of patient engagement. Similarly, they realize the risk limits of concentration – too much exposure to certain payers. They have seen this trend coming and have already moved. For those still trying to reverse or slow the trend, this is where failure first begins ( the search for stasis in a rapidly changing world).
Modern Health Care Risk Management
The second most important function an executive and/or a governance board conducts (second only to planning) is risk management. This key leadership function is evolving rapidly primarily due to the evolutionary movement around compliance (ACA, CMS, etc.) and the payer focal shift from episodic, procedural care to outcome or evidenced based care, pay-for-performance, etc. Similarly, as government policy shifts so does commercial market dynamics with like movements toward pay-for-performance and disease management. While the core concept of “enterprise” protection remains the same, the scope today is different, the breadth wider and the responsibilities and tasks more structured than say, ten plus years ago.
Risk management is the term that encompasses a series of activities, programs, policies, etc. that work (ideally) together to protect and secure the overall enterprise/organizational identity, value, market share, legal structure and by downstream relationship, the stakeholders/shareholders. Its activities, etc. are passive and active. Passive activities (examples) include the purchase of insurance and implementation of firewalls and data security systems. Active activities include audits, training of staff, QA/QI activities, customer/patient engagement programs, etc. The purpose of this post is to focus on the “active” elements and in particular, the most important elements today given the evolving environment and the new risks emerging. The purpose is to frame a model of risk prevention culture rather than an environment fraught with rule deontology and protectionism. The latter tends to breed its own kind of risk(s) in addition to the risk(s) it seeks mitigate.
I like to think of effective risk management plans today as having six key elements. Importantly, the plan is not operative while the elements are. The plan is what the organization uses to monitor the completion (activities), ongoing improvement (identification and address of organizational weakness and vulnerability), and accountability of management in identifying and managing risk. Remember, these elements are the “active” side. I, for sake of the theme of this article, will assume that providers acquire adequate insurance policies utilizing industry professionals in their development plus that they maintain modern IT infrastructure to secure patient data, etc.
- Organizational Focus on Patient Care Quality and Service: This isn’t about slogans or marketing rather, it is about having an overall and deeply integrated culture around patient care outcomes and satisfaction. In a pay-for-performance, competitive, ACO world, this element is key.
- Executive and Board involvement in QA/QI, especially at the highest organizational levels.
- Compensation for management and executives incorporating (heavily) patient outcomes and satisfaction to the degree that all other elements are dwarfed by the weight given to this measure.
- Monitoring in-place of key patient outcome data and benchmarking of the same.
- Monitoring of response and wait times. This element is key as the goal is to create response times as near as possible/practical to immediate or to minimize wait times wherever possible.
- A program of patient/family engagement that includes surveys, focus groups, etc.
- A grievance resolution system that is open, accessible and seeks to address concerns as instantaneous as possible. The approach must be around resolving concerns without delay and bureaucracy.
- Staff training focused on customer service, QA/QI, communication and dealing with patient/family stress, trauma, etc.
- Engagement of staff in a “bottom-up” program or approach whereby lower level line staff are engaged in all training, QA/QI processes, mentoring, etc.
- Audit Contractors and Sub-Contractors: The use of contractors such as physician intensivists (hospitalists) and therapy companies, imaging companies, lab providers, environmental service providers (laundry, housekeeping, etc.) is on the rise as organizations seek to control costs and improve efficiency. Contractors, etc. yield new risk as their conduct, care, service, etc. create a risk transferable directly to the parent organization. The risk of course, is multi-fold. First, as applicable, is care risk (outcomes, service, competence, qualifications, insurance, etc.). Second, is labor risk (legal status, background checks, etc.). Third, is billing risk and compliance risk. If the contractor is involved in any element of care that is billable to a payer (Medicare, Medicaid, commercial insurance), the organization must assure complete compliance with billing and care provision rules in order to negate billing fraud or inappropriate claims risk (risk of non-payment or worse). Summarized, organizations must monitor and audit, externally, the work of contractors. Immunization clauses within contracts cannot supplant audits of risk areas proportional to the scope of the service agreement. For example, the organization must audit its medical staff, the care provided, documentation, billing as applicable, patient contact and satisfaction, response times, etc. The same is true for any care service contractor.
- Billing Audits: This element is particularly crucial for government programs such as Medicare and Medicaid. Providers today must get in the habit of reviewing their claims submitted to payer sources, particularly the government. Two huge risk areas are present today. First, focused fraud actions against providers under the False Claims Act. Audits here are all about making sure that what was billed was actually provided, documented, necessary and compliant. Second, billing accuracy such that claim submissions are “clean” and “accurate”. Denials for inaccuracy, etc. can lead to imbalances in error rates and thus, probes and claims held for review. The latter negatively impacts cash flow and staff productivity as extra work to justify payment is required. I also recommend that organizations be very, very careful about compensation programs tied to revenues and claims, especially without counter-balancing elements and a strong audit program. I like billing audits that are third-party conducted, benchmarked against regional and national data (our business should look like others in the region and nationally) and occur episodically and randomly as frequent as monthly and certainly, no less than quarterly.
- Organizational Transparency and Staff Engagement: A huge risk area providers continue to face is the mixed message and incongruent messages sent to staff from leadership and at the highest levels of the organization. The impetus behind so many False Claims investigations and actions undertaken by the DOJ (Department of Justice) isn’t smart federal auditors – its disgruntled staff. Whistleblowers are the fundamental impetus behind False Claims allegations and actions. Mitigating this risk is simple (beyond doing the right things of course). Organizations, especially leadership, must be transparent and as open and candid as possible. The point here is that there really is no reason to not share goals, plans, operating data, etc. with staff. When I was a CEO, my office was never locked and thus, work and files on my desk and credenza. My compensation was open and I did not hide what I made or how I made it. Not too surprising, across decades of running large healthcare organizations, I never had a fraud allegation or an allegation of any impropriety. Staff knew what the corporate plans were, how they achieved compensation and bonuses, etc. We gain-shared so staff had opportunities to reap reward as the organization grew and performed. Staff engagement means at the planning and implementation levels. It also means active programs of training and a large amount of dialogue regarding why the organization does what it does and where the right and wrong lie. The same Whistleblower mentality is also fundamentally sound when it is used to police bad internal behavior, including that of management.
- Focus on Competence: A simple thing but rarely do I see this element boldly, prominently emphasized. Competence is about the ability to do what is required at the professional, validated level. It is about validation of core skills and abilities within a framework of education and testing. Organizations that focus on developing and maintaining staff and managerial competence limit risk inherently. All together, risk is often a byproduct of incompetence and protection of a weak, status quo. If excellence and competence is demanded and the systems engaged and in-place to assure it, then there is little room for marginal, sub-standard and incompetent to remain. How does an organization focus on competence? First, eliminate old, worn out HR policies and job descriptions and performance evaluations and replace the same with competency and behavioral standards. Competency standards are the elements one must demonstrate and perform as part of the job at a repetitive, proficient level. Behavior standards are the elements of personal conduct and accountability that the organization demands (uniforms, attendance, inservice attendance, etc.). Evaluate standards routinely, move in new skills, refine old skills, educate and test. Require ongoing passage and demonstration and be intolerant of employees and managers that can’t/won’t meet the competency and behavioral requirements. Competency standards are required for ongoing employment; reward for performance thus can only and should only occur when the base standard is consistently exceeded.
- Be Public: By employing all of your constituents in oversight, the likelihood of getting surprised or being caught off guard is minimized. Be public as possible with standards, expectations, contact information, grievance steps, etc. Be open to all criticism and frankly, demand (as much possible) feedback regarding just about anything in the business. No reason that business goals can’t be public and yes, even margin goals. Heck, explain why margins are necessary. Engage the broader universe and community and ask for input and reactions. People will tell you the good, the bad and the ugly – the latter being where potential risk lies. Force the conversation and the accountability and in doing so, limit a large area where risk can fulminate.
Medicare, Billing Audits and Self-Disclosure
Over the last six months or so, I’ve written a number of articles on the issue of SNFs, therapy contracts/contractors, and recent fraud settlements. I’ve also given a few presentations on the same subject, covering how fraud occurs, the relationships between therapy contractors, SNFs and Medicare, and the keys to avoiding fraud. A reader question based on this subject area is the genesis (the answer is anyway) of this post. The questioned shortened and paraphrased is;
“If we (the SNF) conduct an audit of our therapy contractor and our Medicare claims as you suggest and we find abnormalities that appear to be fraudulent claims, what do we do next? We know we have to correct the practices that allowed the claims to happen but is there something else we need to do?”
Not only is this an excellent question given the subject area, the answer or outcome is likely the reason so many providers don’t or won’t audit their therapy contractors and Medicare claims (afraid of what they might find). The answer to the question is YES, there is something else to do and it is a federal requirement if a provider wishes to potentially avoid Civil Monetary Penalties and other remedies. This key step is known as Self Disclosure.
Starting at the beginning: If the results of the “audit” determine that Medicare was billed inappropriately, the provider is in potential violation of the False Claims Act. The False Claims Act describes violations as ‘any entity or person that causes the federal government to make payments for goods or services that are a) not provided b) provided contrary to federal standards or law or, c) provided at a level or quality different than what the claim was submitted for (summarized)’. For Medicare, providers are in violation of the False Claims Act if bills are/were submitted to Medicare (and paid) for care that was inappropriate, unnecessary, falsely misrepresented (upcoding, documentation etc.) or not provided. Assuming, as the questioner poses, that the audit found abnormalities (improper bills and payments) to Medicare (Parts A, B, or C) for any of these reasons, a False Claims Act violation (liability) has been identified. The provider has obligations as a result, under federal law.
The “obligation” once the activity is discovered is to self report. The OIG maintains a Self Disclosure Protocol policy that can be accessed here ( http://oig.hhs.gov/compliance/self-disclosure-info/files/Provider-Self-Disclosure-Protocol.pdf ). Self Disclosure is a methodology that providers can use to potentially avoid Civil Monetary Damages, other remedies and extensive legal costs. Self Disclosure however, cannot be used to mitigate criminal penalties if the activity that is part of the Medicare False Claims violation was/is criminal. Self Disclosure also is not relevant for overpayments. Overpayment issues are handled via the Fiscal Intermediary directly.
Per the OIG Self Disclosure Protocol:
“In 1998, the Office of Inspector General (OIG) of the United States Department of Health and Human Services (HHS) published the Provider Self-Disclosure Protocol (the SDP) at 63 Fed Reg. 58399 (October 30, 1998) to establish a process for health care providers to voluntarily identify, disclose, and resolve instances of potential fraud involving the Federal health care programs (as defined in section 1128B(f) of the Social Security Act (the Act), 42 U.S.C. 1320a–7b(f)). The SDP provides guidance on how to investigate this conduct, quantify damages, and report the conduct to OIG to resolve the provider’s liability under OIG’s civil monetary penalty (CMP) authorities.”
Below are some key points providers need to know prior to and in connection with, a self disclosure process. Again, I encourage all providers that are conducting a billing audit or considering a billing audit, to access the PDF from this post and review the OIG Self Disclosure Protocol.
- A current regulatory process or audit from Medicare (or a contractor such as a ZPIC audit) does not mean that the provider cannot self disclose, provided the disclosure is in good faith.
- Further investigations and reviews are part of the process and providers need to be aware that the OIG will direct the provider’s investigative process as part of the self disclosure. In other words, the audit the provider conducted which may have identified the false claims is not the end nor will it suffice to resolve the matter once disclosed.
- Providers that wish to self disclose need legal counsel as the initial disclosure requires a succinct identification of the legal violations applicable and the scope of the activity and dollar amounts (potential) involved.
- Self disclosure should only be made after corrective action has occurred. The disclosure does not suffice as a remedy for conduct going forward nor can it absolve liability in scope that predates the disclosure or the period disclosed (see the point prior).
- Providers need to be aware that this process is not quick nor does it alleviate or mitigate any requirement for repayment of improper claims. Additionally, providers need to recognize that resolution will require mitigation steps including potential agreement to a compliance program/plan and commitment to additional monitoring/auditing, depending on the scope of the violations disclosed.
I encourage providers to read the Protocol and to pay particular attention to 5 – 9. While I know the information may seem daunting and discouraging, don’t use this post or the information in the Protocol as a reason to not conduct a Medicare billing/claims audit and/or to not report, if violations are found. I assure you, having worked extensively with providers caught by the OIG, DOJ and/or in a Qui Tam action, prevention and self disclosure, while onerous is far better and cheaper than what occurs if the violations are discovered federally.
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