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Analysis: Kindred Pursuit of Gentiva

In news just released, Kindred (the post-acute, skilled, rehab and LTAcH behemoth) has made two separate offers to purchase control of Gentiva, the latest a $14 per share offer consisting of half cash, half stock ($7 and $7). An earlier offer of $13 per share was rejected and it appears the $14 offer will see the same fate. Prior to the news, Gentiva stock was trading in the mid $6 range, down 20% over the preceding 12 months.  The value of the “deal” is pegged at $1.6 billion with $533 million of the total in cash and stock, the balance in assumed Gentiva debt.  On a combined basis, Kindred/Gentiva would weigh-in at $7.2 billion in annual revenues, operating in 47 states.

To date, Gentiva has held fast that it is not for sale and that its present plan, implemented as One Gentiva will create more shareholder value over-time than the Kindred offer.  In December, I wrote a similar analysis post on Gentiva/Harden (the merger) and the home health industry.  The post can be found at . In this post, I commented on the clear flaws in the One Gentiva strategy; principally the broadening of reimbursement risk strategy that is at the core of this strategy.  While Gentiva posted a modest recent quarter profit after $180 million loss, virtually all of the reported gain was a result of accretion from the Harden transaction, not improved operations.  For example, adjusted income attributable to Gentiva shareholders for the first quarter 2014 was $4,8 million compared to $7.1 million twelve months prior.  Net cash provided by operating activities for the first quarter was negative $17.7 million vs. negative $20.6 million one-year prior – not a resounding improvement.  Essentially, the fundamentals of the company are not improving and in some cases, set to erode going forward as the lion share of its revenues are Medicare home health and Medicare hospice (Odyssey) driven (88.5%).  Both Medicare programs face down reimbursement trend pressure, home health dramatically more so than hospice.  Hospice however, is under enormous industry-wide pressure due to continued fraud investigations among major players and the loom of federal program reform (the Medicare hospice benefit).  Essentially, hospice is a no-growth industry now.

Reviewing multiple factors and general industry trends plus the health policy and economic outlooks for both companies and the post-acute industry globally, below is my analysis of the factors influencing (or should influence) the Kindred and Gentiva position.

Kindred: Where Gentiva has a reimbursement risk concentration problem, Kindred has a location of care or outlet concentration problem.  Kindred is brick and mortar deep/heavy, actually too heavy.  Institutional outlets, especially in-scale and capacity are shrinking.  The revenue needs required to support institutional care, on a post-acute basis, are increasing while reimbursement is flat to falling.  The LTAcH and SNF trends are flat and the operational efficiencies available to any provider are minimal, save offloading or minimizing debt. The quality expectations evidenced in regulation and pay-for-performance models won’t allow any significant reductions in variable costs today.  To be an institutional player of success, one must have broad clinical capacity, right-sized bed compliments that match payer demand (occupied by the highest payers at high occupancy levels) and non-institutional outlets to capture discharge revenues plus participate in global contract arenas and networks (ACOs, etc.).  Kindred lacks the home health/hospice scale, especially on a matching outlet basis in its respective markets.  Gentiva adds this element, though at a bit of a risk via the amount of debt that Kindred would assume.  The acquisition is not without risk or a sure-winner.  True Gentiva brings the home health/hospice/community care component that Kindred needs as well as the scale to be immediately impactful, it simultaneously adds another level of reimbursement risk and industry risk that Kindred already has on a large-scale.  Managing and integrating the Gentiva elements into Kindred’s longer range provider of choice model will not come easy.  Likewise, the Gentiva acquisition will only mask temporarily, the fact that Kindred needs to right-size its own portfolio post its acquisitions of Rehabcare and Integracare (the latter a Texas limited home health/hospice provider) while still holding and operating, too much inpatient real estate that isn’t optimally performing in many markets.  In essence, the play makes sense but not fully positive until all the pieces are brought tightly together; a difficult and time-consuming endeavor.

Gentiva: Gentiva has the same problems that Amedysis has and had – it needs to shrink but it can’t.  Gentiva has too much debt and in a reimbursement environment that trends flat to down, it cannot grow itself out of its debt problem by “more of the same”.  It’s diversification strategy through the Harden acquisition is too little, too late and not scalable fast enough to have meaningful impact.  It similarly, can reduce expenses fast-enough via consolidation as it must chase revenue growth to survive and the revenue growth that pays the most is Medicare – a risk concentration it already has too much of.  It needed to re-tool 8 to 10 years ago, balancing its revenue model and expanding its clinical capabilities beyond the typical home health outlet.  Additionally, it needed to become more local-market centric and not simply a Medicare reimbursement machine like Amedysis (an accident waiting to happen).  The notion that its One Gentiva plan can create more value for Gentiva shareholders that the Kindred offer is wrong-headed.  Sans takeover talk, Gentiva trades between $6 and $8 and no upward trajectory is visible.  A simple return analysis illustrates that a Gentiva shareholder will wait at least 18 months or more to equal a return of $14 today, excluding opportunity costs on the investment.  Similarly, the risk concentration elements that could turn such an outlook even more dire are more than double on the Gentiva holding than on a comparable dollar for dollar holding with Kindred.  Kindred simply has more ways to generate revenue, a more stable expense base, lower fixed costs and less reimbursement risk concentration than Gentiva.  If Gentiva chooses not to sell, holding out for more than $14, I think the shareholders will pressure such a move in the near-term future.  The Kindred offer, with debt assumption is in my opinion,  a max value offer that 12 months from now, is off the table.






May 15, 2014 Posted by | Home Health | , , , , , , , , , , | Leave a comment

Hospice and the Medicare Choices Program: A Follow-Up

Below is a link to an article from Bloomberg Business Week regarding the Hospice industry and the Medicare Choices Program.  My last post covered the elements of this CMS demonstration project.  The link comes from the original piece written by Charles Elmore and published in the Palm Beach Post this weekend.  Readers will note my interview comments appear on pages 2 and 3.



May 14, 2014 Posted by | Hospice | , , , , , | Leave a comment

Hospice and the Medicare Care Choices Model: A Progressive Approach?

About a month ago (mid-March), CMS introduced a pilot program called the Medicare Care Choices Model.  Basically, this pilot program will allow Medicare beneficiaries to access, via certain participating hospice organizations, dual benefits; hospice and curative treatments, concurrently.  Under the current Medicare Hospice Benefit, a patient with a terminal illness or condition, certified likely to die in 6 months or less by a physician, can enroll into the Hospice Benefit but in doing so, forgoes the traditional coverage for curative treatments under traditional Part A.  Essentially, by electing the Medicare Hospice Benefit, the patient has decided not to pursue an aggressive path of cure or curative interventions or treatment (chemotherapy, radiation therapy, artificial hydration/nutrition, etc.) opting instead for palliative care, symptom management, and a progressive path toward natural death.

In the Medicare Care Choices Model, Hospices that apply and are selected to participate in the program will provide services available under the Medicare hospice benefit for routine home care and inpatient respite levels of care that are not separately billable under Medicare Parts A, B, and D.  The services must be available 24 hours per day and across all calendar days per year.  CMS will pay a $400 per beneficiary per month fee to the participating hospices for these services.  Providers and suppliers furnishing curative services to beneficiaries participating in Medicare Care Choices Model will  continue to bill Medicare for the reasonable and necessary services they furnish.  Per CMS, the ideal hospice applicants for program participation can demonstrate a history of providing care/case coordination to patients, across a continuum of providers and suppliers.

Returning to the title of this post: Is this progressive on the part of CMS?  The truth  is best answered – “not really”.  There are a number of current issues with regard to the Medicare Hospice benefit, care utilization, end-of-life care in general, and yes, the ACA at play.  Under the ACA/Obamacare, the Secretary of HHS has a mandate to implement changes to the Medicare Hospice benefit no earlier than October 1, 2013. Abt and Associates (consultants) has been gathering and analyzing data on lengths of stay, place of care, length of stays in hospice by diagnosis, costs of care, etc.  The Medicare Care Choices Model is in certain respects, a trial balloon element in the process of overhaul for the Medicare Hospice benefit.

Another operative element or issue and one that hospices are all too familiar with of late is the utilization pattern changes that are occurring across the spectrum of end-of-life care.  Hospice referral patterns haven’t changed much but the nature of the referral has.  Additionally, census trends for most hospices are flat and when viewed with/against lengths of stay, the trends are actually “down”.  In short, an evolving dichotomy for hospice referrals is occurring.  The referrals are modestly increasing in many urban/suburban regions but at the expense of the length of stay.  The patient is finally referred at the end of his/her life, after all curative options are exhausted.  Per CMS, 44 percent of Medicare patients use the hospice benefit at end-of-life but in a continuing pattern, at the end of life resulting in shorter and shorter stay increments.

Back to the question in the title of the post, this initiative is less about promoting or integrating hospice earlier, though the outcome of earlier intervention could occur.  What CMS is tinkering with or intending to impact, is the continued growth of very expensive medical care in the last months of life.  The two greatest drivers for Medicare spending in the U.S. are the cost of caring for “lifestyle” diseases (chronic diseases such as Type II diabetes) and care provided within the last six months of a person’s life.  The latter is the target for this program.  The premise is as such.  If, by integrating hospice into the equation sooner, having removed the curative or interventional obstacle, patients will transition earlier to palliative care, foregoing certain last rounds of inpatient, interventionist care and thereby, save the government money.  The patient and the curative care team (the physician, hospitals, etc.) will be less loathe to refer to hospice and address the prospect of treatment futility (even though that prospect is real) since, under this program, the patient may continue to pursue as much interventional and curative approaches as desired.

My quick analysis is that this program, while a novel approach, doesn’t really achieve any of the objectives intended (savings, better care, easier transitions, earlier transitions, more appropriate care, etc.). My reasons and conclusions are as follows;

  • The issue of when a patient chooses to opt for end-of-life care versus curative care is more an American cultural/social issue than a public policy issue.  As Americans, we are inculcated that death is bad, life is premiere.  Our health insurance, especially now with ACA reforms, has virtually no limits on the treatment we can access (no lifetime minimums and no pre-existing condition limitations).  Our media (television, print, other) is full of advertisements of procedures, drugs, providers that offer hope and cure.  Watch a Cancer Treatment Center of America spot – a prime example.  Physician specialists aren’t trained to forego what may clearly be futile care but instead, to press forward and to convey options and hope.  In fact, the number of physician specialty groups that I have spoken with over the years validates this point emphatically: “Hospice is futility. We provide hope”. This element is the leading cause of late stage referrals when in validation, futility is truly evident as the patient is nearly dead or the final rounds of whatever treatment have shown no result.
  • There is no financial incentive to change or alter the care provided.  In the Choices model, the patient may access curative care and receive hospice services.  The hospice receives $400 more per month (for care coordination) and all other provides bill Medicare for their interventions, services, etc.  If CMS is relying on the care coordination skills of the hospice to facilitate better choices by the patient, his/’her family and/or the other providers, they are truly foolish.  These groups have no financial incentive to partner on best choices and unless, CMS provides regulatory boundaries or payment incentives aligned to certain behavior, the savings will be minimal.
  • There isn’t a real incentive for patients to enroll in this pilot project, other than they can get routine home care, respite, etc. benefits from the hospice.  In reality, patients who are going to pursue curative options aren’t thinking hospice options.  Likewise, the providers offering the curative interventions aren’t talking hospice options at this point.  Our current healthcare system doesn’t function on this integrate plane.  Thus, there truly is no motivation across the actors (hospice, curative providers, patients, families) to change current behavior.  In fact, I see a risk for new avenues of improper utilization, qualification and abuse.  Enrollment in hospice under this program is going to be challenging to qualify and quantify as in theory, where is the point of terminality (without intervention, death is likely in 6 months).

It will be interesting to watch how this program rolls-out and how CMS addresses or attempt to address the nuanced and overt regulatory issues that today, are separate and distinct by benefit programs.  Likewise, it will be interesting to see how patient utilize, if they do to any extent, this hybrid model. The economist in me tells me that the concept and programmatic approach makes financial sense but operatively, this isn’t a slam-dunk in terms of ever working in the real world.  There are simply too many behavioral impediments today for this to be a truly successful model.




April 16, 2014 Posted by | Hospice, Policy and Politics - Wisconsin | , , , , , , , , , | Leave a comment

SNF Caution: Medicare and End of Life Billing

While this isn’t a de novo trend, it is one that I am seeing again with frequency and thus, it bears/requires CAUTION. This trend is commonly referred to as Skilled until Death or End-of-Life Skilled.  The reference in “skilled” is Medicare; delivering qualified skilled nursing or skilled therapy services (or combination thereof) with sufficient frequency and intensity to qualify the resident for Medicare coverage, post a three-day qualifying hospital inpatient stay.  The genesis of this trend lies in the differences between the Medicare benefits found in the SNF/traditional Part A program and the Medicare Hospice benefit. The logic for families/residents is as follows (why or why not hospice, etc.).

A patient in a hospital, likely terminal in a short time period and incapable (for a myriad of reasons) of returning home, is approaching discharge.  The inpatient stay length in the hospital is sufficient to meet the three-day rule for Medicare A coverage in the nursing home.  The patient’s condition likewise is such, that he/she will meet the eligibility test for coverage under the Medicare Hospice benefit.  Here’s the nuance.   If the patient elects the Medicare Hospice benefit and requires an inpatient stay in an institutional setting, such as an SNF, prior to his/her death, the patient must pay the prevailing cost of the room and board component. The caveat is unless the patient is eligible or qualified for Medicaid and then, the Medicaid program would pay the SNF for the room and board cost.  The Hospice benefit does not cover such a cost unless the inpatient stay was respite or qualified as General Inpatient for advanced symptom management, etc.  Under the Medicare Part A SNF benefit, the patient may discharge to the SNF, receive the first 20 days of covered care essentially free and then, if still qualified, pay a lower cost per diem co-pay for any covered days past the initial 20.  In this simplistic fashion, it seems logical for most parties that unless the patient was Medicaid eligible, the best route is to remain on traditional Medicare and access the Part A SNF benefit.  For families and patients, this makes sense but for providers; SLOW DOWN!  Showing my age and “borrowing” from a TV favorite in my past, “Danger Will Robinson … Danger”.

The Medicare Part A SNF benefit does not contain any RUG related to End of Life or Palliative Care.  In fact, there is no presumption of payment for any end of life care under the Part A SNF benefit as the same was never meant to be used for any reason other than a post-acute transfer style payment up and until, the patient could re-transition to his/her permanent residence, off of the Medicare coverage.  Thus, the only aspects of coverage determination/eligibility (sans the 3 day prior rule) is the medical necessity of daily skilled services defined as professional nursing (RN), rehabilitative therapies (PT, OT, ST) or some combination between nursing and other related skilled disciplines such as respiratory therapy, dietitians, etc.  Many of the traditional end-of-life hospice/palliative type services would not, meet any of the Medicare Part A SNF “skilled” coverage criteria.  Simple management of pain or symptoms without necessitating routine RN assessment and dosage changes isn’t a skilled SNF service.  IV’s in and of themselves, don’t engender lots of skilled nursing coverage.  If someone is likely to die in a reasonably short time, therapies are unwarranted for any length of time, save perhaps a day or two to develop other care plans for swallowing, positioning, etc.

How  this subject rises to the CAUTION level is driven by two separate but inter-operative elements in government today.  First, the heightened focus from the OIG on SNF care, its appropriateness, its billing issues, etc.  The industry is watched closer today than ever and RAC and Other audits are heating up.  Second, the government’s vigilance and determination today in finding fraud, particularly acts/violations of the False Claim Act.  Now, lest anyone thinks I am being too alarmist, I have a long list of clients within my consulting practice work that are using us to help with post-payment reviews and claims denials for SNF Part A claims.

The take-away here is very simple….if it walks like a duck, quacks and has feathers, call it a duck.  If the patient’s prognosis and plan is death, even if one can gin-up Part A coverage, don’t do it.  First, the act of providing non-medically necessary care or care not warranted (inverse coding) is an act of fraud and a violation under the False Claims Act.  Similarly, over-treatment and unnecessary care may bring professional sanctions for licensed individuals as well.  Essentially, an ethical problem of a large degree is present.  Of course, if the patient has consented to a course of curative  or interventional care as a last shot at improvement or in an effort to re-build strength/stamina prior to a wedding, family event, etc., the services are warranted and should be properly billed to the Part A SNF benefit.  Quite honestly, what I see routinely is the latter is the outlier. The “skilled until death” driven by cost is the norm and this one is perilous for those who play the game.  Auditors are out there and this “phenomenon” is known to the OIG and as it grows, scrutinized.  Remember, coverage is determined by the legitimate medical needs of the patient, as determined by assessment and framed by the goal/determination and consent of the patient (and/or his legal surrogate).  If this does not warrant the use of daily skilled services/interventions to achieve the goal of the patient and meet his/her legitimate care needs as assessed, no coverage is available under Part A.  Going beyond this prior point in search of coverage is an act of achieving payment for non-warranted, non-necessary services and as such, a violation of the False Claims Act.




April 2, 2014 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , | 2 Comments

Amedisys Today: A Cautionary Tale

Rarely do I write about a specific company as my work doesn’t focus on individual companies per se, more on industries and the policy/economics of health care industry segments.  Occasionally, a company’s story typifies an industry flaw or trend or the same is illustrative of an endemic issue (Vitas for example).  Amedisys’ continued saga of decline is an exception where a company’s story is illustrative of a series of missteps and failures in vision and leadership.  The latter is a trend I see altogether too often.

Yesterday, Amedisys announced its third quarter results (4th quarter 2013). In summary, for the quarter net revenues declined by 13.7%, net loss increased to $2.2 million a decrease of 135% compared to the same period in 2012 and annualized negative changes (from year to year) in EBITDA (negative 49.7%) and net income of 83.8%.  Comparatively, two years ago their margin was 7% (not good but not deplorable), -26% last year and for 2013, -5.6%.  Their aggregated profit margin in “real-time” is -16%.  In spite of any rhetoric from management (new leadership at the helm after the ouster all too late in my opinion of founder Bill Borne) about hitting bottom, improving fundamentals, etc. the future picture is “crystal”.  In fact, analyst surprise over yesterday’s results is illustrative of a lack of generalized understanding about health policy, health care/provider risk concentration, and sustainable operations.  Suffice to say, no surprise looks on my face.

I have written before somewhat on Amedisys and referenced them as a story that others insist on paralleling (Vitas again comes to mind).  So as the title reference applies, below is the cautionary tale.

  • Concentration of Risk: All too many providers get caught-up in following the “shiny object” syndrome.  They mine the reimbursement trend of greatest reward, using the most advantageous coding, and layering their plates with as many patients possible that fit the highest payment profile.  Some do this by stretching the very definitions of medical necessity.  Others do so by overly zealous and questionable referral methods; some overtly fraudulent such as pay-for-referral or incentive-for-referral arrangements with other providers.  The flawed belief is that effective lobbying, smoother lawyers, and a public persona campaign that focuses on “good, ethical, high quality care” imagery will somehow ward off intrusions that could burst the bubble.  All of the aforementioned is the flaw in how health care reimbursement and policy really works. The handwriting was on the wall for Amedisys as its book of business was feverishly high with Medicare patients and patient profiles by margin, concentrated in therapy.  All the signs of a crumble were present and no diversification strategy was even in the works when the OIG stepped-in, Congress following and CMS on the backend re-writing reimbursement rules.  The hey day ended and today, with no ability to re-tool quick enough away from the only business model Amedisys knows but generate visits under Medicare, their financial house is exposed.  They were too big, too reliant on a single element of business and not properly diversified to mitigate the risk exposure that comes with mining government reimbursement programs.
  • Short vs. Long Term: To be certain, publicly traded companies are driven by ever-increasing earnings and thus can lose quickly, the perspective of sustainability of business.  Like in mining, veins tap out quickly and the quest is always to find another “motherload”.  Unfortunately in health care, more of the same even widely diversified by geography doesn’t create sustainability it simply magnifies the concentration of risk.  Creating a sustainable platform of survival and thus success is all about leveraging core competency beyond the simple “how much per eaches can I bill”.  Innovation and multi-level capabilities crossing all lines of business and depth of payer diversification is how long-term earnings are made.  I refer to this, as do others, as system thinking.  Integrating pieces and constantly rolling-forward new lines of innovation allows for a pipeline of other service/product lines to build sustainable growth and profit.
  • Failure to Understand Policy and Economic Implications: Health policy is rarely illogical though it often in final form, is misguided and bureaucratically over-cooked.  Medicare and Medicaid are unsustainable entitlement programs and government’s response to structural funding problems is to reduce “spending” not sustain it or increase it.  Any provider segment today that believes more money for anything is forthcoming truly has suspended reality.  This isn’t to say that in components, Medicare and Medicaid can’t be viable business segments.  It does mean that the world has been changing for quite some time and anyone who pays attention to basic, easily accessible information from source like MedPac can see the change ahead.  The days of disconnect between quality and volume are over.  Excessive margins are eroding from all elements of Medicare.  Payments are heavily scrutinized.  Providers that haven’t been preparing for this shift across many prior years are today, rueing the lack of foresight.  This is true for all provider segments.  Home health fell earliest.
  • The Fraud Peril Disconnect: I lost track years ago of how many providers/executives/boards I have talked to and counseled regarding “too much success”.  There is an inherent disconnect that occurs when profits are rising, volumes the same, and life is “good”.  Instead of asking key questions and doing a little independent analysis around “why so good”, the push goes on to ramp-up even a tad more.  The incentives rise, the fever brews and no one seems willing to ask the pressing question of, “why are we doing so good”?  Instead of analysis to create justification, I counsel the alternative; analysis that questions any justification.  The latter is a discipline that focuses on matching trends elsewhere and demands a clear line of service to billing.  When the trends in any organization are simply so much better than any other organization logic demands inquisition as to why.  If others start following, I get even more nervous.  Conversely, if an organization suddenly finds a swell that arose simply by following an established industry trend, I also get nervous.  Systemic fraud occurs mostly because organizations justify their own results with rhetoric rather than clear analysis.  Any focus on why and how things are truly occurring, particularly via an external, non-invested source will quickly detect where the break-downs lie and the risks run deep.  Unfortunately and all too often, the executive level reaction is the “three monkey reaction”; hear no evil, see no evil, speak no evil.

The cautionary tale?  Amedisys exemplifies all of the above.  Today, Vitas the same and I fear Gentiva is on their heels.  Each has too much reimbursement concentration of risk, a business model that solely exists to gather certain types of patients and a cavalier regard for health policy and economic trends.  Their models are unsustainable without complete overhaul and an overhaul is not in the cards as doing so would require a planned shrinkage and a death spiral for their share price.  Oddly enough, their share prices will still hit the death spiral, as did Amedisys but not because of the prior comment.  This spiral will occur as a result of not having read the cautionary tale sooner.

Next for Amedisys?  Non-existence as a public company is my forecast and continued acquisition of their shares on behalf of KKR is the harbinger.  I predict, as I have in other posts, that Vitas is on the same path as Amedisys and nothing to date has eroded this opinion; its only stronger.  Vitas has enormous risk concentration, a disregard in operating philosophy from the real reimbursement and policy climate operative today and a focus almost entirely on reinvigorating volume and thus earnings.  The latter is anathema to where they sit on the Feds radar.

March 14, 2014 Posted by | Home Health, Hospice, Policy and Politics - Federal | , , , , , , , , | Leave a comment

Decline in Hospice Demand?

In the last month and across a series of analyst calls (investment firms) that I field on a regular basis, a question repeats: Why is the demand for hospice declining? Of course the economist in me wants to opine in great detail about “demand” and what factors increase or decrease demand or, shift demand among substitution products, etc.  For brevity, the demand lecture isn’t warranted and in actuality, the current hospice dynamics are less about an increase or decrease in demand, more about realizing where core “hospice” demand lies.

Point of fact: The demand for hospice services at the core hasn’t changed at all and in some markets, demand as expressed by referral volume is up.  The trend that is evident however is that the demand as expressed in overall lengths of service has changed.  This is the impact that most providers are seeing/feeling.  While for some, year over year volumes are flat to down for others, volumes in terms of referrals and encounters are rising but core census is flat.  The flat census expressed by the number of covered individuals on service at any one point, has flattened even with referral volumes increasing simply because stays are shorter.

What is happening in the industry is a bit like realignment of incentives and forces that as they congeal, are morphing demand as experienced by providers. Integrating these pieces paints a picture of now and near future demand  in the industry.

  • The Vitas Impact: Anytime the largest player in the industry is targeted by fraud and federal investigative activity, the spill-over to all providers of similar size (and the rest of the industry) shifts the market.  This impact can’t be directly quantified but it is of a large magnitude.  The behavioral aspects of the DOJ suit are a reminder to all providers to tread lightly in certain operational areas – namely marketing, certification and re-certification.  One need look no further than the home health industry and the Amedisys targeting to see how the entirety of an industry is ultimately impacted once the microscope is fixed on the largest provider.
  • Large vs. Small Providers: The substantial industry growth between 200o and 2011 (60%) occurred almost entirely in the proprietary (for-profit) sector and among large, multi-state, national scope providers. Across the same period, the non-profit and government providers shrunk in numbers.  The overt scrutiny from Medpac, CMS and the OIG/DOJ is on this segment of the industry.  Large False Claims actions and settlements have occurred in the “big” or “large” side of the industry, creating certain behavioral changes that shift elements of the industry demand profile.  Again, the largest impact all other providers in the space as fundamentally, these large providers account for fully half of the industry patient population at any given point.
  • CMS Changes and Diagnostic Scrutiny: Looking at demand and taking into account the drivers since 2000, one can easily be fooled that the core demand was larger than it is.  The laxity in certification definitions within the Hospice benefit created a wide playing field as providers entered the market.  Is this or was this an unveiling of pent-up demand?  Hardly.  It was an exploration of how demand could be quantified or in many cases created or justified to meet the supply of providers in the market.  Across this same ten-year period, the fastest growing diagnoses in terms of percentage increase and volume were Non-Alzheimer’s dementia, general debility and failure to thrive.  Not surprisingly, these same diagnostic (for lack of a better term) categories also profile the longest stays.  By 2014, CMS will eliminate these categories as suitable for certification and require additional diagnostic coding to substantiate initial and ongoing certification.  A quick review of the utilization data by diagnosis illustrates how such changes are playing out on the demand side (data courtesy of CMS – click on the link to open the media files and tab select the charts from the bottom of the spreadsheet).

Copy of Top_20_Charts_1998-2008

Reviewing the above and the attached data charts paints a clearer picture of the shifting demand components.  If, as CMS and Medpac suggest, that as much as 25% of the certifications in the dementia (non-Alzheimers), general debility and failure to thrive categories don’t have any other diagnostic comorbidities suggestive of imminent death (6 months or less), than a quarter of the “demand” is logically lost.  Because demand in all instances is impacted by behavior, market and individuals (single or collective), changes in behavior as a result of changes in incentives leads to adjustments in demand.  In the case of hospice, this is clearly evident today and will magnify going forward.  As I have stated before, the industry has too many providers chasing too few organically terminal patients.

The reality regarding the demand equation today for hospice is that the demand is still present and likely, growing.  What is changing however is the methodology for accessing the demand is different.  Demand for hospice providers is a function of two elements: patients with an appropriate diagnosis and length of stay.  If, as is the case, certain generalized diagnoses are no longer appropriate,  this doesn’t equate necessarily to a lack of demand.  It does equate to a shift in demand from current (today) to future as the overall condition of the patient deteriorates and demand quantifiable through coding, becomes evident.  As the market re-balances and the demand curve stabilizes along a new level of equilibrium between all providers (of which there will be fewer) and the new number of appropriately terminal patients (by definition), providers will see stability.  It is certain that average lengths of stay will decline as categorically, the drivers will no longer exist.  It is also certain that hospices that thrive will adjust behaviorally.  For example, nursing home enrolments will no longer be the “gold mine” for many providers.  Payment reform will adjust this element in the next year or two.  Additionally, greater regulatory scrutiny regarding place-of-care is a certainty as CMS is paying greater attention to the diagnostic qualifiers and matching SNF MDS submissions to hospice data (heads up).  The end: Volumes are flat and in some cases marginally increasing but the demand is for intense, shorter stays and more volatility in referrals.  This is the new norm and providers are feeling the shift toward this revised equilibrium point.

December 9, 2013 Posted by | Hospice | , , , , , , | 1 Comment

Home Health Focus: Gentiva/Harden and More

A couple of weeks ago, I wrote a post covering the Home Health PPS Final Rule for 2014.  As I was writing that post, I simultaneously reviewed the Gentiva/Harden deal plus the recent quarterly earnings of Amedisys and Almost Family (plus their acquisition of SunCrest HealthCare).  The earnings reports plus the analytics from these two recent transactions paint and interesting picture of where the Home Health industry is headed.

Starting with Gentiva/Harden, and analogous to the Almost Family/SunCrest deal, the transactions are not due to growth or really expansion; rather each is about creating defensive scale.  Gentiva/Harden is a bit of an oddity in so much that Harden has a brick and mortar component via ownership of a small portfolio of skilled nursing facilities in Texas. This element however, is not a complimentary piece for Gentiva and as such, my prediction is these facilities will divest from Gentiva post a final roll-up period.  The SNF piece is not what they do nor does it really provide a significant source of additional volume or revenue, net of the risk and asset holding cost.  Harden grew out from the facility ownership side and thus, the SNF component was in their “wheelhouse”.  The same is not true with Gentiva.  Regardless of the rhetoric from Gentiva regarding keeping all management, integrating all components, etc., transactions of this scale don’t work that way – they never do.  The outlet pieces and the home health book of business is what Gentiva is after.

The same is true in the Almost Family/SunCrest deal with one exception – it’s a home health – home health deal.  Almost Family is looking for outlets and the home health book of business to create scale and volume insulation.  To a certain extent, both transactions are also about “book of business” diversification; more so in the Harden deal.  Almost Family and Gentiva have a risk concentration in their home health revenue models known as Medicare.  As my post on the Home Health Final Rule covered, Medicare is a payment source that is shrinking via overall outlay and directed payments per episode. The belief among Gentiva and Almost Family is that mass, ideally scalable via more outlets and more efficient infrastructure will insulate the revenue and thus, earnings impact.  In short, even if the margin per each case falls, if more cases are attainable and the incremental expense in doing so is proportionately less than the incremental revenue gain (ideally by a factor of greater than 20%), then it makes sense to increase volume.  That’s the theory at least.

Looking at where Gentiva and Almost Family started in terms of earnings reports prior to or concurrent with the referenced transactions, each had their share of performance issues. Almost Family posted an earnings surprise (per share) positive (11% up over consensus) but delving into the numbers shows a continuing performance problem.  Additionally, the net impact of additional Medicare cuts foreshadows more negativity in the upcoming quarters, even in spite of the SunCrest deal.  It will take Almost Family all of 2014 to absorb and re-define the benefits or difficulties of the SunCrest deal,  In the meantime, their risk concentration in skilled nursing and Medicare remains high.  Their savior in the interim is a steady growth outlook for their non-Medicare personal care business. Volume growth remains attainable but in order for a continued bright earnings outlook, the growth in personal care, a less revenue rich source than skilled home care, must be equal to or greater than the revenue reductions forthcoming under Medicare.  My view is that in the interim, pending absorption of SunCrest, net income and revenues will flatten or trend slightly down.

Gentiva is moving on a parallel trend to Almost Family, with one exception – Odyssey.  Gentiva owns the nation-wide hospice provider Odyssey and as such, a  twist that separates or bifurcates its strategy from Almost Family exists. On the home health side, Gentiva is seeking outlet growth and looking to expand its presence in the non-Medicare, personal care world as well as the Medicaid waiver world commonly known as Home and Community Based Services (HCBS).  The Harden acquisition is the jump for Gentiva into this niche.  Prior to Harden, Gentiva was a non to bit player in the non-Medicare, personal and community care environment.

For the nine-months ending September 30, Gentiva lost $197 million.  Not surprising, the company announced, post the Harden disclosure, a consolidation and restructuring plan called One Gentiva.  The intent is to tighten operations, reduce redundancy, and coordinate revenue opportunities more closely between its home health operations and its hospice operations (Odyssey). The Odyssey segment revenue contribution shrunk by 7.5%, year over year.  Hospice clearly is a struggling segment as the overhang of the Vitas suit plus the changes in certification requirements and coding have effectively narrowed or literally closed, resources commonly used by providers like Odyssey to capture patients and attract new business.  The One Gentiva initiative will no doubt, further shrink the Odyssey/hospice component, both in terms of outlet numbers and operational infrastructure components in an attempt to mitigate further revenue and earnings erosion to Gentiva consolidated.

Placing all of the above into context and adding a quick peek at Amedisys, the home health industry is clearly struggling and trying to rebalance. Amedisys, once the biggest player in the home health industry, continues to reel post a series of federal investigations and fraud allegations.  Their recent settlement ($150 million) with the Department of Justice regarding Medicare improper billing allegations added another nail in a coffin that continues to emerge.  Continued losses, closure of outlets, and further Medicare reductions foretell a near future of non-existence.  My prediction is that Amedisys will soon be restructured to a private company via a private equity transaction.  The future for them is bleak and the industry outlook for Medicare home health providers of which Amedisys dominated, is fraught with revenue decline and earnings suppression.

The focus on the near future for companies like Almost Family and Gentiva is about survival.  Can the strategy of creating greater scale and volume in a declining revenue environment continue to produce positive earnings?  If the theory that when the margin per each drops, doing more per “eachs” with a controlled incremental expense element lower than the incremental revenue produced through greater volume is accurate, then at some point earnings improve.  Unfortunately, I have never seen this theory play-out in a home health or health care environment.  By its operational nature, home health is fairly inefficient in terms of staffing productivity and volume efficiency.  Within a volatile landscape, the inefficiencies increase as more variables are operative that can quickly, change referral patterns and volume fortunes.  Revenue always erodes faster than expense particularly since the bulk of the expense is staff that can’t be quickly recruited, trained and then fallowed when volumes decline or stagnate.

The other side of the strategy, diversification away from the Medicare risk concentration via increased volume in the personal care, Medicaid world offers some hope but it is not a silver lining.  True, dual-eligibles (Medicare/Medicaid) provide greater revenue capture opportunity but not without assuming another element of governmental payer risk – Medicaid. Medicaid has its share of problems and in the HCBS world, the providers therein paint a picture of cuts as demonic as in the straight Medicare world.  In virtually every state, Medicaid has a “spend-less” charge not a “spend-more” profile, even with Obamacare.  Medicaid expansion under the ACA drops cash into state coffers but only to address the increased enrollment of folks who are under 65 and uninsured.  This group is not a big user of HCBS or home health.  The 65 plus group that dominates the HCBS world and is the personal care side of the industry does not benefit via Obamacare and thus, states continue to seek ways to limit the financial impact to state funded Medicaid via HCBS.  As more states move to a Managed Medicaid model, the impact of shrinking or constraining Medicaid cash outlays for HCBS and personal care is just now emerging. In short, I just can’t buy the notion that diversification toward a Medicaid component is a salvation or a counter-balance to revenue reductions on the Medicare skilled side.  The impact in my opinion, is nominal in the near-term and perhaps equally or greater negative over the next two to three years.

December 6, 2013 Posted by | Home Health | , , , , , , | 2 Comments

Reforming the Medicare Hospice Benefit

As a wrap to my two previous articles regarding recent fraud and False Claims Act suits and issues in the hospice industry, a concluding piece is warranted.  As I have written before, the fraud issues and cases in the Hospice industry divide (though not equally) between the providers committing the fraud and an inferior Medicare Hospice Benefit combined with CMS’ ability to effectively administer the benefit.  As with all provider programs under Medicare, the payment methodology provides increased levels of reimbursement for higher intensity or higher acuity care.  These higher payment levels are often dramatically out-of-sync with how patients utilize care and how providers deliver care and support operating realities simultaneously.  Additionally, the justification methodologies employed by CMS for a provider to grab a higher level of care and thus garner more reimbursement provide no effective screen to the event.  In short, the governmental recourse is post-claim reviews, often not completed, and when complete, years post the payment fraud.  Oddly enough, the government (CMS) doesn’t even effectively monitor current claim trends against normative utilization patterns. Perhaps this is why the Department of Justice and the CMS Office of Inspector General estimate annual fraudulent billings to Medicare of between $60 and $90 billion.

Since inception, the Medicare Hospice benefit has received the least amount of re-work, structurally in terms of definitional language and organically in terms of payment methodology.  For all intents and purposes, other than per diem payment machinations, the payment levels and definitions remain unchanged. Likewise, the eligibility and benefit structure remains fundamentally unchanged.  These two core elements are incongruous to the industry growth and general health policy trends that have occurred since the benefits origin. While the number of patients and providers has grown dramatically over the past decade (twice as many beneficiaries using the benefit today), the payment and eligibility plus coverage criteria remain fundamentally unchanged.

The Accountable Care Act includes a mandate for the Secretary of HHS to reform the Medicare hospice payment system and thus, a rounded benefit program (ideally) to mirror the payment changes.  In effect, the benefit will be substantively revised, at least from a payment perspective.  As go payment changes in these programs, so comes regulatory language that ultimately, configures in whole or in part, the related coverage and benefits (e.g., acute and post-acute PPS).  Prior to this forthcoming change, Congress in 2010 authorized a demonstration project for Medicare and the hospice industry, allowing Medicare payments for, in concert with the per diem hospice benefit, certain amounts of curative care.  To date, no movement on this initiative has taken hold.

The hospice hardline exists between curative and palliative care. Enrollees must forego any curative care options in order to garner the Medicare hospice benefit and the services of a hospice.  For all too many patients, this is an unacceptable choice.  For all too many physicians, this keeps hospice out of the discussion as an option; saving the futility implication for a point later.  The net effect of this hardline is that hospice utilization, while up in numbers, is increasingly driven to the last days of life.  It also increasingly occurs in an institutional setting as opposed to the “hospice goal” of dying at home.

The dilemma for economic policy consultants such as me is that hospice is an aspect of the care continuum that should see higher, appropriate utilization. By appropriate, I mean less of the “push the envelope” growth evidenced in the Vitas complaint and less of the very last days of life growth that come only after all other options exhaust.  Hospice or palliative care is an exceptional delivery system that can save the Medicare program significant dollars while offering qualified patients, comfort and access to appropriate resources.  Getting to the modernization and reformed program level however, requires a conceptual shift in the Medicare hospice benefit.

  • Best practice diagnostic screenings and assessments need to take the place of the ‘certification’ standard presently in-place.  Medicine is very capable today of approximating death by types of disease.
  • The benefit needs to integrate transitional periods of curative technology and care, allowing patients to transition earlier.  If recovery occurs, so be it.  This conceptually, will satisfy the barriers in the minds of patients and physicians and removed the “futility” stigma. A payment methodology needs to incorporate this care.
  • A PPS methodology needs creation with logical review periods and standards, analogous to home health, SNFs, etc.  Logically, the hospice system is simpler and can encompass far less criteria.
  • Within the PPS methodology, the “place of care” issue requires reform.  Payment must reflect the care needs of the patients, not the paradigm of “death at home”.  An aging society is less and less likely to “die at home” as integrated families and non-paid caregivers are less and less the norm.  More patients on hospice, will die in institutional environments and the payment methodology must incorporate this reality.
  • A flaw exists in the Medpac remedy of per diem payments (same model adjusted) correlated to length of stay  unless the same correlates to an assessment and a resulting PPS model.  In this approach, length of stay is not  a factor; care required is the sole factor. If Medpac believes intensity changes through the stay, this model addresses that issue generically.
  • The concept of benefit periods needs revamping.  Personally, from an economic perspective,  I prefer someone using a palliative benefit program for a year or more compared tot the present fee-for-service Medicare model.  In fact, the Hospice benefit should incorporate end-stage care and palliative care payments as opposed to the current paradigm which is truly, end-stage.

While I can’t guarantee the above changes eliminate the fraud activity in the industry, they certainly level the field and address the flaws in the Medicare hospice benefit that contribute to the fraudulent activity.  Provider behavior, especially when a profit element is at play, will always follow to a certain extent, the economic axiom of “what gets paid for gets done”.

May 16, 2013 Posted by | Hospice, Policy and Politics - Federal | , , , , , , | 1 Comment

United States v. Vitas: The Impact and What Next

On May 5, the U.S. Department of Justice released its most recent complaint (legal suit filed in Federal court) against Chemed, the corporate parent of Vitas.  The complaint is a False Claims Act suit.  Briefly for the uninitiated, a False Claims Act suit alleges that the Medicare provider knowingly (or unknowingly but once discovered, did not disclose) engaged in certain activity to cause payment to the provider for Medicare services that (not exhaustively listed);

  • Were not provided
  • Were provided but not necessary
  • Were provided improperly, through illegal or unethical means such as via a kick-back scheme, etc.
  • Were or are not substantiated by patient need
  • Were provided by a person or organization not in compliance with relevant Medicare Conditions of Participation
  • Were provided to patients that did not meet coverage criteria

The dominant False Claims Act suits relate to care not provided, care billed for at a particular level despite a related patient need (over-billing), or care provided by but not substantiated by assessment, documentation, or certification.  In the case against Chemed/Vitas, the Federal government is alleging that Vitas intentionally over-billed Medicare for higher reimbursement amounts by “up-coding” patient needs absent any real need and, admitted patients for care and billed for services where there was no definitional or certifiable need on the part of the patient.  In this case, each violation is alleged against Vitas as a hospice provider organization.

Through various cited examples to substantiate its case, the Federal government alleges three primary activities and/or schemes ( the support for the listed causes of action) that led to a series of False Claim Act violations, spanning from 2002 to current.

  • Coding a patient as requiring Continuous or Crisis Care where no such need existed.  Continuous Care or Crisis Care is the highest reimbursed care level within the Medicare Hospice Benefit; today, averaging just short of $1,000 per day. Because of the definition standards and requirements for a hospice to provide and therein bill for Continuous Care, the utilization across the industry averages less than 2% of all days of care. (Vitas averaged nearly 20% of its days in this category.) The requirement for a hospice is a patient’s current symptomatic needs are so complex and unstable that the hospice provide at minimum, 8 hours of licensed nursing care to the patient within a 24 hour period.  Typically, this care is rendered by RNs and somewhat less often, LPNs or LVNs.  Its rarity stems from two components.  First, the true need of a patient in crisis with an end-stage disease for 8 or more hours of licensed nursing care.  Second, the reality of hospice staff levels and the availability of dedicated, licensed nursing coverage for a single patient.  Medicare Conditions of Participation do not allow nursing services via agency contract.  All nursing, except for very episodic and highly unusual instances, must be provided by the hospice employees exclusively.
  • Enrolling patients and thus accepting the Medicare hospice per diem (presently averaging around $160 per day) that did not meet the hospice certification criteria of ‘likely terminal, sans curative interventions, within 6 months or less’.  Citing numerous examples, the complaint details a pervasive practice of increasing revenues and thus, patient volume via enrolling patients and fraudulently certifying the same as terminal, when the patient was not under any common review, proximal to death.
  • Employing aggressive marketing campaigns and incentivizing employees and agents, to knowingly misrepresent patient conditions and/or falsely enroll and then subsequently, code as appropriate for hospice including, at higher reimbursement levels such as Continuous or Crisis Care levels.

Reading the complaint, I was struck with a number of thoughts.  First, the magnitude of the complaint is huge.  It encapsulates the entirety of Chemed’s hospice holdings, collectively Vitas.  The majority of False Claims Act complaints are against a single provider or geographically and agency limited.  Additionally, the time period referenced encompasses over a decade of claims.  As I have followed False Claims Act cases in health care for years and paid close attention to the hospice activity, a reasonable estimate of the dollar amount (Vitas)involved is hundreds of millions of actual claims that are exposed to treble damages before the imposition of Civil Monetary Penalties.  There is also the shadow of criminal prosecution for certain Vitas actors and management looming. Finally, this complaint is in the midst of other complaints against Vitas, open or soon to be open.  A significant False Claims Act case is open against them in Texas and a newly opened complaint with a physician whistleblower in Los Angeles just broke and is today, wrapped in the broader complaint.  Shareholder suits, although relatively meaningless are popping (meaningless in damages, still damaging in costs to defend). As is always the circumstance in matters such as this, the complaint will have tentacles and I suspect there are many.

In an earlier post, I wrote how the parallel is striking between Vitas’ current problems and the investigations that crippled and continue to cripple Amedysis.  Amedysis was the “big dog” in the home health industry until it became the target of Department of Justice investigations and Senate inquiries.  Once trading at nearly $60 per share, Amedysis trades today around $10.  Their earnings estimates continue to shallow and at 10x projected earnings, their share price today should be around $5.  Once a billion dollar plus company, Amedysis today has shrunk by more than half.  They continue to close agencies and scramble to maintain market share.  Major network contracts have cut their exposure to Amedysis and thus, payments.  Their aggressive Medicare business is a fraction of what it once was and they remain today, under investigation.  The last likely play is to go private via a private-equity sale and simultaneously restructure, outside of the publicly traded arena.

Reading various investment analyst reports and Vitas’ disclosures, the “take away” on the part of Wall Street is more wait and see with some folks marking this up to “cost of doing business” and others trying to grasp the magnitude.  As I consult for a number of firms that invest in the health care industry, I understand the difficulties in wrapping one’s head around the complaints and the possible fall-out for Chemed/Vitas.  Because of my working knowledge of the health care industry, depth of experience with the regulatory process, etc., my view is more solid (not necessarily right perhaps) today than that of most investment firms. My view comes from thirty years of research, operational, and consulting work in the industry.

From my vantage point, Vitas is about to begin a slow and profound slide into an abyss that they will not recover from.  The complaints current and yet forthcoming, paint an overall picture of a business model that is grossly non-compliant and steeped in fraud at the core.  Retooling this model, just as occurred with Amedysis, will shrink revenue, market share, and company value expressed via price per share.  Unlike Amedysis, Vitas exists in the “hospice space” only.  They have no other revenue source or model.  Amedysis had and continues to have, some ability to ply the entirety of the home health industry and to a much lesser scale, the hospice industry. Their revenue model is sufficiently broader, though flawed in its reliance on exploiting Medicare and the therapy components thereto. Vitas exists in an industry where Medicare is the primary payer and the overall market for hospice by definition, is very narrow.  A significant “clip” to their volume and revenue streams resulting from having to adjust in response to current and future investigations will begin the shrinking process and as more is disclosed, the process accelerates.

True enough that the ultimate settlement may not be fully crippling even though the scope could be hundreds of millions of dollars.  The real damages lie in the go-forward world of continued compliance monitoring and being subject to a lengthy period of oversight by the Feds.  Again, I offer Amedysis as a reference.  The complaints won’t resolve timely and thus, the slow dance of revision begins.  Moreover, everything now public suggests a clear tone from the Department of Justice and CMS of a focused intent to shrink the prevalence of large, for-profit hospices and curtail dramatically, the incentive to suspiciously enroll non-terminal patients.  Their words in various locations, tell me straight-forward that the industry has a fraud pandemic and the day of reckoning has arrived.  Vitas, just as Amedysis on the home health side, is the poster-child face of the “bad actors” per the Feds.  Vitas is the example and the governmental intent is clear: get them compliant at any cost including the death of the company.  The Washington view is that ample providers exist to care for the organic demand (my view as well) and the loss of Vitas will have no negative impact on access (again, my view as well).

What next?  The implosion of Vitas begins and the hospice industry will bear some of the fall-out.  The Feds are ramping-up investigations and reviews across the industry and for the providers who think vulnerability doesn’t exist, I offer words of extreme caution. Mandated by the ACA, the Secretary of HHS must promulgate new payment methodology for the industry after October 1, 2013 and before September 30, 2014.  The cases against Vitas and others that have committed similar violations will form the backdrop for payment restructuring and associated rule-making.  As has happened across the health care industry, payment reform and restructured rules associated with the same, emanate from sector dynamics current.  My guess is that the next round of payment reform for the hospice industry will organically change provider business models and not toward greater profitability.

Note: Readers with subject level interest in hospice and/or separately, the topic of fraud and compliance in healthcare will find a number of prior posts on these topics, on this site.

May 15, 2013 Posted by | Hospice, Policy and Politics - Federal | , , , , , , , , | 7 Comments

Hospice Tumult: The Beggining of the End?

Over the past couple of months or so, I’ve watched rather intently, the developing storm clouds in the Hospice industry. Suffice to say, what is now apparent takes the form of a perfect storm.  For industry “watchers”, the news regarding Vitas and the amalgamation of federal false claims act suits is a reflection on the core flaws in the present industry model.

For years, I have written and lectured on the market and reimbursement flaw dynamics that exist in the industry and in the current Medicare Hospice Benefit.  Apparently, the Feds via way of the OIG and Department of Justice have finally caught up.  The citations within recently disclosed actions against Vitas, San Diego Hospice, Harmony Hospice in South Carolina, etc. confirm what I have stated for years: the industry has more “providers” than true, organic patients. By organic I mean patients that meet the Medicare hospice benefit eligibility criteria (likely terminal within 6 months). CMS by virtue of continuing to neglect a revamp of the eligibility criteria and reimbursement methodology is complicit in allowing the growth in false claims activity.  The incentives provided within the present Conditions of Participation and the benefit and reimbursement language, are so misaligned with how patients utilize and access hospice services that providers seeking volume and revenue growth have teased and breached, the False Claims Act line.  Minor modifications and clarity such as follows would have shifted the paradigm away from the fraud temptation.

  • Payment modification by place of care.  Lower payments to hospices caring for patients in institutional setting such as SNFs and ALFs has always been logical and prudent.
  • Standardized assessment and certification criteria on the front-end.  SNFs have RUGs, hospitals DRGs, and Home Health has OASIS yet hospice remains a simple certification with no specific assessment criteria for achieving Medicare eligibility for the benefit.
  • Shorter, more dynamic re-certification periods with focused contractor review and documentation standards required at set periods.  Think Part B therapy for example as somewhat of a template (emphasis on somewhat as the MMR process is flawed as well).

The similarities between the above referenced cases and frankly, others that have risen before, are striking.  In each case, the core of the underlying cases are agencies and entities struggling to justify their financial and business existence via admission of only truly organically terminal patients or for that matter, those that are most probably terminal.  By estimation and research within my firm, this population is roughly 65 to 70% of the total patient volume in the industry currently.  Stated another way, fully one-third of all current hospice enrollment is questionable by Medicare definition and therefore, a False Claims Act liability for the agency.  Additionally, a group that is organically terminal or has a high degree of probability of becoming such within a thirty-day window, exhibits a much shorter length of stay profile than what is common among Vitas, Odyssey/Gentiva, etc.  These factors contribute to the plain conclusion that generating year-over-year growth in margin, volume, etc. is improbable unless a solid portion of this growth is suspect and thus, potentially fraudulent.

Now enters the Department of Justice with a literal cruise missile launch across the industry bow. Anyone in the hospice industry mistakenly believing that the massive action against Vitas/Chemed won’t affect them isn’t paying attention.  A la federal investigations and actions against Amedysis, once the largest home health company in the nation, the Vitas action will re-shape the fortunes of the industry and the providers therein. The industry will logically contract and the largest providers that dominate will naturally adjust their business model or face similar investigative actions.  Stays will shorten, discharges will rise, nursing home and assisted living facilities will see less aggressive marketing activity and lower engagement from the respective hospices.  Logically, margins will tighten and census will erode.  Ultimately, CMS will re-visit the fall-out from the Vitas cases with revised regulatory language designed to preempt another rise of fraudulent activity.

And what of Vitas/Chemed?  If I parallel the fortunes of Amedysis, an analogous journey, Vitas is all but done. Certainly, there are phoenix cases but this is not logically one nor was Amedysis.  Vitas’ business model is steeped in what caused the problem as was/is Amedysis’ business model.  Public companies can’t exist without investor confidence and without a record of growth in terms of earnings.  Ultimately, earnings can only be derived by volume growth and revenue growth.  Vitas will not be in a position going forward to continue on this path and certainly, not without substantive changes to how its done business.  Again, logically improbable. In the parallel universe where Amedysis resides, their stock price has fallen from the mid-fifty dollar range to the ten-dollar range today.  Consensus analyst opinions place the price per share target between $5 and $8.  Moving a step further, Amedysis’ value has shrunk by plus 50%.  A similar experience awaits Vitas/Chemed, if not worse.

In a follow-up post, I will review the specifics regarding Vitas and provide thoughts on what I believe, happens next.

May 14, 2013 Posted by | Hospice, Policy and Politics - Federal | , , , , , , , | Leave a comment