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SNFs: Five Competitive Strategies Worthy of Investment

One of the top questions I’m asked by clients, readers, students, and interested parties everywhere is how can my organization excel in a competitive environment.  In other words, how can I build my organization’s value proposition such that the organization becomes the provider of choice in the market?  My answer is always thematically the same: Be different in a way that is perceptible and tangible to the market and to the trends in the industry.  Think Apple.  Apple is constantly rolling forward new technology to feed the trends and its customer base iterations (the changes that occur among its customers as each Apple release begets more desired upgrade on behalf of the users).

Before I give out five rock solid strategies that any SNF can pursue, I need to frame what not to do first or specifically, what won’t work.  First, building the organization’s Medicare star number by manipulating the input data on staffing, quality indicators, etc.  Waste of time, perilous on a number of levels and ultimately, a no -win unless compliance surveys correlate to the 4 or 5 star level.  Second, baiting, paying, cajoling and/or bribing referral sources (discharge planners and physicians).  This is fraud and while it may work in the short-run, in the long-run it won’t plus its illegal (for those saying this doesn’t happen, guess again – I see it all the time).  Third, marketing and advertising without the requisite pedigree to back it up.  All the words and images don’t and won’t work if the product isn’t there and the experience on behalf of residents isn’t good.

On to the strategies.  These work for a number of reasons but most importantly, because they are cutting-edge, fit the health policy landscape, and are patient/family centric.  Additionally, none of these is expensive, though each requires some investment -just not mega-bucks. Once operative, each is a difference marker and likely, not repeated within a given market area.

  1. Excel at Food: Institutional food service whether outsourced or produced on-site is the bane of residents and families from a service and quality perspective.  Further, it is unnecessarily clinical.  The trend is complete de-institutionalization; top to bottom.  First, ditch all diets – one general diet is fine and preferred.  It is the facility’s job to manage resident weight, health, etc. and special diets just aren’t required.  Second, quit modifying food products and fluids chemically or mechanically.  Use food to create substitute products with recipes and to modify products for thickness, texture or consistency.  Find a culinary school or good chef near your facility for pointers here.  Have great food and diets that any resident, under any condition will rave over and the facility will rise immediately to the top of the market, at least in this category.
  2. Excel at Care Coordination and Advanced Care PlanningAdvanced Care Planning is all about helping residents and families make good choices with regard to care and treatment decisions.  Healthcare people and especially institutional care sites stink at this.  Being great means knowing how to have the right conversation at the right time and having resources available to help people make good decisions.  Think of how many dollars can be saved in everything from unnecessary meds, to unnecessary tests, to reduce hospitalizations, ER visits, etc. with proper communication around risks and benefits and individual choices.  Likewise, great pre-admission planning and discharge planning wrapped around Advanced Care Planning will lead to fewer hospital re-admissions, more complete care on discharge, faster care on admission (fewer delays in care), and enhanced staff productivity (particularly nursing) as less time is spent on phone calls, communicating non-critical labs, etc.  Excel at this and watch hospital referrers, physicians and satisfied residents/families laud your facility.
  3. Excel at Behavior Management: This is all about reducing unnecessary drugs plus improving the care of behavioral challenged residents.  The latter includes the ability to “step-up” your rehab and restorative nursing programming, even for the dementia afflicted. This is all about training and employing the techniques that are available from organizations such as CPI and TCI (Crisis Prevention Institute and Therapeutic Crisis Intervention).  Residents become medicated most often for staff convenience and conformity with the institutional environment.  Train all care levels and support levels in how and why behavior occurs, make simple changes, and meet as a Behavior Team regularly and watch overall resident behavior decrease, staff confidence rise, crisis and panic reduce and residents and families become happier.  Likewise, facilities which become really good at crisis and behavior management become a resource for the community – a center of excellence.
  4. Get Connected: For a minimal investment, get your facility on the web and if it already is, build its own ap!  Develop a patient/family access point with all kinds of information and resources about everything common to resident questions, family concerns, etc.  Use Skype as an activity and as an options for families to watch an activity, to talk to the doctor and/or to participate in a therapy session with their loved one.  Connect with a local tech school or university for cheap talent maybe, talent which is free as part of an internship.
  5. Bring it In-House: This strategy requires the most investment dollars but again, not a ton if done right.  The more internal capacity/competency that is available on-site, the fewer care transitions the facility will experience.  Fewer care transitions = lower risk.  Fewer care transitions reduces and/or eliminates, delays in care.  The list here is lengthy but any of the limited following are inexpensive (relatively) and simple: I&Rs, mobile x-ray with digital results, on-site swallow studies via FEES, IV starts including PIC lines, fluoroscopy, Doppler studies, EKGs, in-house therapy (non-contracted).  Each of these can be a simple, huge improvement and none require a six figure investment or even half of a six figure investment.

Accomplish any of the above, a few of the above or all of the above and communicate and market the same within the facility’s market area and start becoming the provider of choice.

September 29, 2014 Posted by | Skilled Nursing | , , , , , , , , | Leave a comment

CCRC Update 2014

Earlier this spring (a couple, three moths ago), I spoke at a marketing/P.R. conference and when my session was over, I sat and visited with a number of the attendees.  My presentation was about value propositions and marketing; how to align your organization’s core economic value components within a marketplace, within a customer segment.  Within the short additional time I spent with these attendees, I learned that a number of their organizations (CCRCs) were still struggling post the recent economic recession/slow-down.  In fact, a number of them expressed that in their areas/region, recovery hadn’t yet begun.

Since that event and over the course of the past three months or so, I took notes on various client engagements, discussions and research reports on how the CCRC industry is fairing these days.  Before I break down my conclusions/observations, some general prefacing comments about the industry are required.  First, the CCRC industry is truly different by location and thus, it is expected that some areas/regions, etc. are faring better than others. Second, established projects have fared differently than newer projects; not always better but different.  Third, the capital structure of a CCRC (how much debt and how the debt is structured in terms of rate, etc.) is a major component of how well or not well, certain projects are doing.

Below are my observations/conclusions of how the CCRC industry is doing mid-way through the third quarter of 2014.  As stated, most of my observations are first-hand (client engagements)* followed by research and conversations with those that work in and around the industry. *(My firm and in many cases me specifically, does capital development/corporate development work within the industry including consultant’s reports when covenant defaults occur, strategic planning, turn-around consultation, M&A work, research for banks and investment banks, and economic, market, and financial feasibility studies.  My comments do not reflect any specific client or series of clients or any engagement former or current).

  • Late 2013/early 2014, Fitch issued their outlook on the CCRC industry as “stable”.  Their conclusion was that improving occupancy rates, stable expenses due to the non-inflationary economy and access to low (historically) cost capital was favorable and thus, their rating.  In general, I concur that where real estate rebounded (used inventory down, prices stable and climbing) and general economic conditions improved (unemployment falling, commercial activity rising, etc.), demand for units returned to near pre-recession levels and occupancy increased.  However, as I mentioned at the beginning of this post, there remains pockets of weakness, some fairly profound, across the country.  The regional/local outlook as opposed to the 20,000 foot national trend is more relevant to the success/struggle of any one project.  For example, our clients in “rust belt, heavy manufacturing” areas in Ohio, Wisconsin, Illinois, West Virginia and New York would mount a stiff argument that the outlook is far from “stable”.
  • Pricing has remained relatively flat and in many areas, occupancy gains have occurred as a result of discounting and promotions.  I don’t see this changing any time soon as while demand is good in some areas, demand is tempered by recent events and still, a large amount of economic uncertainty.  The wealth profile of the current demographic has shifted, especially on the income component.
  • Approximately half of the projects that were in the development queue in 2008 evaporated or re-scaled.  Only recently has the industry returned to a somewhat robust, new development outlook.  Access to continued low-cost capital is a key element of fuel for this emerging (again) trend and even though rates ticked-up in November/December 2013, they have since stabilized.  Rate however, is just one component.  Demand for debt on the part of investors is still at low ebb.  Suppressed yields have moved investors out of fixed rate, tax exempt debt en-masse.  Deals still are competitive but nowhere close to pre-recession levels.  Banks are only now starting to revisit commercial lending to the sector and again, not with the same fervor as pre-2008. The overall number of outlets has declined and the debt to equity levels are still conservative (70/30).  Valuations remain a bit low as comps are still weighted by one-off deals, distress deals and work-outs and bankruptcies.  Book remains the valuation arbiter and as such, cap levels remain in a narrow range.  Overall, the capital outlook is fair but caution and uncertainty remain prevalent and thus, valuations are flat and good deals get done but marginal deals still struggle.
  • Rising occupancy and improving economic conditions have slowed defaults and tempered bankruptcies but not eliminated them.  Again, certain projects in improving economies have rebounded though others in regions/markets of slow to no-recovery languish.  Though average occupancy has once again moved into the low ninetieth percentile across the industry, I still see projects below this level on a regular basis and some, profoundly below.  In virtually all instances when I encounter low occupancy, two elements are present.  First, the market area is struggling economically – real estate, jobs, infrastructure, etc.  Second, the project itself is really viable or relevant.  More on this latter point toward the end.
  • Projects that have done well, rebounded, stayed vibrant exhibit the following key elements, aside from being in a market area that isn’t still declining or not recovering.   First, they were not overly leveraged.  Second, they had/have investments and cash reserves.  Third, they didn’t defer maintenance to any great extent.  Fourth, they stayed relatively lean on the expense side. Fifth, they have diversified revenue streams/bases.  Sixth, their pricing was market balanced and actuarially sound.  Finally, their management was forward-thinking and had plans in place to address the changing environment.  They have a good senses of the economic and market conditions impacting their organization and they plan and address these conditions fluidly.
  • Projects that haven’t fared well exhibit the opposite characteristics from above and/or, they simply exist in market areas that haven’t rebounded.  The most common element of struggling projects that I see is ineffective senior management and governance.  They simply never moved beyond a paradigm that was shifting, shifted and won’t ever return.  They aren’t relevant  and  haven’t learned or developed the current competencies required to compete in a different economic and market environment.  For many, the writing is on the wall and for some, revival is possible but a complete turn-around is required.

What I have concluded over the last few months is that industry success is a function today of five components;

  1. Being in a market area that is economically stable and modestly improving.  Real estate fluidity and price stability is important but equally  important is the general economic outlook, government infrastructure and commercial economy.  Projects that aren’t in this type of environment won’t, no matter what they do, improve beyond a point of mere survival (thriving just isn’t possible).
  2. Marketing and pricing today require a completely different set of competencies and strategies to achieve success.  Pricing must be strategic and financially validated and demonstrative of a clear value proposition.  No longer can a project succeed on guessing, market comparables and eyeballing what “management thinks” the budget will support. Marketing is different as well.  This is no longer a real estate driven sale and the economic axiom of elastic demand applies.  CCRCs have a very elastic demand curve and such, pricing and marketing must unite in the creation and communication of the economic value proposition.  More leads than ever are required to generate sales and build and hold, market share.  Traditional print and media ads won’t get it done.
  3. A highly diverse revenue stream/platform (multiple service lines) such that liquidity and debt service covenants can comfortably be made within normative occupancy levels (90th percentile or lower is best). If this is the case, the CCRC also tends to be more market competitive and capable of self-referral and internal market development.  In other words, it has multiple channels for referral development.
  4. Strong, capable management/leadership that isn’t necessarily, tied to the industry conventional wisdom.  They are adept at planning, forecasting, and keeping operations structured on high-quality, efficient service delivery.  They know the market, know their place in it, know the economic outlooks and demand elements and adjust their products accordingly.
  5. A relevant physical plant environment for the market.  A project doesn’t have to be new and/or the most glitzy.  It does have to fit the market however and be current – minimal to no deferred maintenance.  Economic value proposition are about proper product value, inclusive of warranty, for the customer to evaluate the tangible and intangible relevance.  The physical real estate elements are a major component of the proposition and properly positioned within the overall project, priced and communicated correctly, the prospects for sales and success are high.

August 15, 2014 Posted by | Senior Housing | , , , , , , , | Leave a comment

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 http://wp.me/ptUlY-fV . 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

CCRC/Seniors Housing Outlook 2014

Using characterizations, 2013 was a year of gradual ascent for the industry but not necessarily, uniformly so.  After a series of years preceding classified as industry malaise, occupancy began to trend forward and absorption rates stabilize.  Industry wide, overall occupancy is hovering around 90% for CCRCs though again, this number is broadly misleading.  Non-profit CCRCs, the bulk of the industry, fell-off slower and less dramatic and thus today, have risen back in generalized occupancy above 90%.  For-profits, fewer in number and newer in market, remain below 90% in overall occupancy (88%).  Interesting to note is that the bulk of non-profit CCRCs are entrance fee communities whereas the for profit variety trend toward rental models.

The question for 2014 is will a growth trend emerge?  My answer is “no” but the tide will remain somewhat positive.  What needs expansion is the following;

  • CCRCs and Seniors Housing is very local and regional.  Effectively, market dynamics at the local and regional level will play more directly than national trends.  As each economic region and market have recovered differently and are pacing recovery differently, so are the prospects for Seniors Housing.
  • The real estate market, while better, remains vulnerable nationally and moreover, regionally.  Some regions and municipal areas have rebounded nicely and days on market have returned to historic lows (averages) and prices, increased to pre-recession levels.  Conversely, other regions remain stuck or have only marginally rebounded (the Detroit area, portions of Chicago are current examples).  For true CCRC prosperity to return, the residential real estate market must continue to strengthen.
  • The overall economy is still mired close to neutral.  Job gains are somewhat phantom and Labor Department unemployment numbers a misleading gauge.  The job gains made are not career oriented jobs with moderate to high wages and solid benefit packages.  The gains are part-time, lower wage, service sector and seasonal/temporary work.  The overall participation rate remains at 40 year lows (fewer numbers) and the long-term unemployment number, grudgingly high.  Inflation remains low and accommodative monetary policy has suppressed fixed income yields at record lows.  Essentially, this means price inflation remains checked, even for seniors housing.  With seniors feeling the pinch of income suppression (low social security increases, low fixed income returns, etc.), the income component of the rent equation remains compressed.
  • Available product in many markets is still fairly high.  While new projects are coming on, the rate is still slow and recent upticks in financing costs have changed the capital components on project cost.  Recall that in April of 2013, unrated and rated tax exempt debt  was at record lows and volume in terms of issuance on the uptick.  Essentially, demand was equal to and often greater, than supply.  Nine months later, the cost in terms of interest is 25 to 50% higher across all rated  and unrated categories  with new project/new campus debt cost today hovering around 8.5%.  Though capital markets remain relatively fluid for projects, the costs today have moved high enough to re-shape new product entries in terms of timing and scope.  Similarly, the fluidity that does exist is subject to short-term volatility as Fed policy (the degree of tapering), global shifts in monetary fortunes via emerging market currency valuation changes (a far lengthier discussion is warranted for this but not now), and the fixed income bias to “short” duration (fearful of upward rate volatility) shifts liquidity and funding dynamics.

Given the above, my outlook is good but not great.  I see continued occupancy improvements but incrementally.  I also see continued regional struggles as some locations are just not in recovery mode.  I see enough volatility economically to keep things moving cautiously forward.  Similarly, the same volatility can rear a period of distraction and even retrenchment, though I think such a period is brief.  Projects will emerge cautiously and then again, given funding dynamics, will evaporate and re-scale.  I think the wholesale raft of tax exempt debt refinancings will cool substantially as the cost of a refunding without enough interest savings has narrowed or tipped, especially for less than A rated credit. I think price compression will continue as rates will remain suppressed by fixed income fortunes and low inflation.  Revenue improvements will continue to come from rising occupancy and improved operational efficiencies though the latter is probably, mostly wrung out.

Non-profits will continue to out perform for-profits in most markets if for no other reason than their time in-market.  For consumers, these sponsors and projects have been around long enough to garner trust and build reputational stability.  This isn’t to say that for profits can’t succeed and many will but as a generalized industry trend, the non profits are ahead of the curve.  This gap however, will narrow if and when, the industry fully rebounds.  A challenge for non-profits is that while they lead in reputational time in-market, they do so often with older physical plants.

Where vulnerability for organizations remains is at the capital structure level.  I still see a tough year with a continued high volume of technical covenant defaults (usually liquidity covenants).  Rate compression and the inability to pass along too much rate inflation (if any at all) coupled with occupancy challenges was the driver in 2013 and will continue to 2014.  We saw some salvation with low rate refinancings but that window has closed for the majority.  The key solution for most is recovering occupancy and for some, this will remain difficult given regional economic challenges.  What I do know however, is creativity in solutions and positioning is key and will continue to be so for at least 2014.

A key element for all providers that seems missed to me in numerous discussions is the true demographic picture and thus demand equation within the market.  For lack of a better term (or terms), I call this the Baby Boom Fallacy.  Too many developers and providers have reached the conclusion that the market is rich with and growing exponentially because of Baby Boomers.  In reality, nothing is further from the truth today, and for the next number of years.  The true baby boom period is 1947 to 1963.  This means that the oldest Boomers are just above 65 (67 to 68).  Using the real age math for seniors housing and CCRCs in terms of average age of initial occupancy (non-hybrid projects like Del Webb communities aise) at 80, the impact of the Boomers is still a decade away.  Their impact today is as adult children and influencers of the current resident prospects; not prospects themselves.

The current resident demographic demand is the baby bust generation or war babies.  The World War II era babies are part of time where birth rates declined due to depression recovery and the war.  The target range lies within the group born between 1930 and 1943 – pre Baby Boom.  This period in time is more bust than boom in terms of numbers.  The shift in numbers evident within this group (today) over prior periods is evolutionary due to survival, not due to birth rate.  There are more of these 75 plus folks than ever before solely due to increased life expectancy; nothing more.  Targeting this group, their cultural norms and their experiences (social, economic, etc.) is where marketing and planning should be – not focused on Boomers.  The Boomers, contrary to rhetoric, aren’t here yet as the consumer.

January 28, 2014 Posted by | Senior Housing | , , , , , , , | Leave a comment

Improving Real Estate Economy Leading to Improving Seniors Housing Trends?

Among the improvement laggards in the current slow economic recovery was the real estate sector of the economy.  Despite record low borrowing rates, home sales seemed stuck in neutral even as positive GDP growth resumed, modest gains in employment occurred, and consumer confidence improved.

Starting late summer 2012 and accelerating in to 2013, the real estate economy has strengthened and improved nicely.  Historically, a healthy real estate economy correlates to strong seniors housing starts, sales and occupancy.  With many major markets over-supplied as of late in terms of seniors housing units (demand perspective), an improving real estate economy, if trends hold true, imparts hope for the seniors housing sector – or does it?

Seniors housing, as I have written before, has a very price elastic demand curve.  Essentially, this means that potential buyers and the universe thereof, is directly influenced by the cost of the housing option.  Even when costs remain stable, the demand equation changes dramatically if the buyer for the units experiences change (real or perceived) in his/her economic capacity.  Negative changes such as falling real estate prices, constrained ability to liquidate real estate, or reduction in the number of potential buyers for the real estate contribute directly to a senior’s ability and willingness to purchase a seniors housing option.  The most dramatic impacts occur within projects that are above-market priced or higher-end as the elasticity of demand for the most expensive options is greatest.  In effect, the higher the price the more the consumer of the product or service, will shift to lower cost alternatives, if his/her ability or capacity to purchase has changed (again, real or perceived).

What is most interesting about the real estate economy compared to other economic sectors is that national trends don’t play-out directly, in regional or local markets.  Take for example, markets or regions where oil and natural gas production has exploded.  Even during the slowest, most depressed times for the real estate economy nationally, the real estate sector in these regions and locales was booming.  Housing of any form in areas such as Casper, Wyoming  and Williston, North Dakota was (and remains) scarce, pricy, and by timing (supply and demand), development scarce.  Conversely, some markets fared far worse than national trends in terms of foreclosures, time on the market and price deflation (Las Vegas and Chicago, IL are examples). Given the regional drivers that impact the real estate economy, recovery will vary dramatically.

Correlating a recovering real estate economy to an improving seniors housing sales and occupancy cycle is simplistic from a global perspective but at the site-specific end, a bit more daunting.  What we know generally is that a more fluid, stable real estate market generally improves the occupancy, unit absorption and sales results for seniors housing.  We also know that in general, by occupancy and ultimately, price inflation, it improves the operating results of seniors housing projects.  What we don’t yet know is whether this recovery is a harbinger of longer-term real estate stability and does the improvement tide wash over all markets at some point and in what time frame.

Arguably, this recovery is perhaps different, certainly less uniform and due to other over-arching economic issues, more complex than any post recession period prior.  In certain markets, those that were the least impacted by too much existing supply, rapid increases in unemployment and a large number of foreclosures (REO or REJ properties), recovery is impactful for seniors housing projects, especially if the unit supply is normative or about par with pre-recession demand.  In other markets where prices fell dramatically, foreclosures were heavy and unemployment greater than national average, recovery will be slow.  Even the latest positive economic news regarding the real estate economy is a tad misleading.  Yes, most markets are improving.  Yes inventory is down, days on the market is improving, listing prices are recovering, etc. (a few markets such as Columbus, OH, Philadelphia, PA and Spokane, WA continue to see price deflation) but the improvements are from a very, low point.  In short, the improvements are signs of “recovery” not a validation of stability – yet.

While the road ahead appears somewhat smoother, the opportunity for pot-holes exists and thus, the relationship between real estate fortune and seniors housing is still rocky.  My considerations worth noting are as follows.

  • Employment and wage growth (personal income) is still stubbornly slow.  Under-employment at record highs.
  • In some markets, employment and under-employment will never return to post-recession levels.  Certain jobs and companies are gone from the landscape for good.
  • Interest rates today are less of a function of improving sales even though low rates improve affordability and thus, general increases in eligible buyers.  Changes to federal lending laws and mortgage requirements have tightened credit requirements for borrowers.  These changes, regardless of how low rates remain or go, preclude a large universe of individuals from securing favorable term mortgages.  In short, the supply of buyers has shrunk and permanently so.
  • Given how low rates have been and for how long, rate rise to a certain degree is forthcoming.  Rising rates inversely impacts the supply of buyers (negatively).
  • Price increases for individual homes won’t broach pre-recession levels (actual or inflation adjusted) for years in many markets.  In certain markets such as the Metro Chicago region, price increases in terms of realized sales, are years out to achieve pre-recession par.
  • The overall economy is still vulnerable and the consumer, still leery of what can lie ahead.  Confidence is better but not great.  Consumer confidence is critical to a buyer’s willingness to leverage long-term, arguably as critical as financial capability to buy.
  • Seniors housing costs are at their low-ebb as expressed by monthly rental and in some communities, entry fees.  While costs continue to rise, albeit not dramatically, the pressure to begin to inflate fees is present for many projects.  Fee inflation during a recovery period or stabilization period is anathema to improving unit sales and developing new prospects.  With the elasticity of the product, rising rates in a market that still isn’t healed can “chill” prospective buyers.

Is the trend improving for seniors housing?  Yes but not universally and the real estate economy in many regions remains disconnected.  Additionally, I think the direct correlation between a strong real estate economy and the prospect for seniors housing sales has changed.  Yes it remains a major factor but property sales cycles will remain slower than prior periods, prices lower than prior periods, and buyers for individual homes, in lower numbers than in prior periods.  The take-away is this: The improving real estate economy is good news, not necessarily great news or for that matter, a sign of salvation for projects looking to ramp-up sales with urgency. The trend is improving but full improvement, is still down the road and for certain, the road is different in direction than before.

June 4, 2013 Posted by | Senior Housing | , , , , , | Leave a comment

Home Health Outlook: 2013

In spite of best intentions, wicked winter weather across the middle U.S. has kept me off-track a bit and thus, I haven’t quite met my goal of having these all published by Valentine’s Day.  Below is my and my firm’s consensus Outlook on the Home Health industry for calendar year 2013 (part FY 2014).

Summary Comments: While we are bullish on organic patient volume growth, we are tepid on earnings growth for most providers.  The primary reason?  A continued federal onslaught to reduce and rebase, Medicare payments to providers.  Where we are bullish for the future is the prospect for industry growth in “new” payment models; namely ACOs and Bundled payments.  The trick with these new payment models is for the industry to fine-tune its role, its operations, and its ability to manage a more risky patient profile than found in the traditional, downstream fee-for-service environment of current.  The very nature of the new payment models is to shift or transfer certain risks to lower cost providers.  In this role, the post-acute industry and Home Health specifically, will find that managing a more complex patient is required while doing so efficiently and economically is the overarching requirement for success.

In the interim period as the industry is finding new footing in the ACO/bundled payment environment, revenue crunch will continue. Medpac is recommending continuing rate reductions principally via rebasing the Home Health PPS and eliminating the market basket adjustment.  Muddying this approach a bit is the loom of Sequestration cuts.  Additionally, states continue to struggle with Medicaid.  In October and in briefs of support on behalf of California to reduce provider payments, CMS and the Obama Administration argued in favor of a state’s rights to reduce provider payments.  While California is an outlier in terms of state fiscal health, the resulting support from CMS implies wide latitude will be given to states in terms of structuring payments if in fact, the states can provide supporting evidence that access will not be compromised.  Our quick assumption is that most provider segments demonstrate enough overall capacity that states will win the argument that rate reductions won’t adversely impact patient access.

Medicare : Thanks to prior decade payment machinations set-up by Congress to address a perceived access issue to patients requiring more therapy, the industry has since felt a backlash of negative activism with regard to Medicare and perceived (and in some cases real) overpayments for care.  As convoluted as this sounds, the crux is that Congress incented certain behaviors, providers took advantage of the incentives and all of sudden, Congress rises again and screams “fraud”.  Coincidentally, the FRAUD cry came when margins for providers crept near 20% on their Medicare book of business.  Suffice to say, we didn’t see anywhere near the fraud alleged moreover, providers properly taking advantage of an imbalanced payment system. The whole story here reminds us a favorite children’s book: “If you give a Moose a Muffin….”.

Medicare spending on Home Health approximates $19 billion.  Per Medpac, margins in 2013 on average, should be 11.8%, down from 14.8% in 2011.  The change is entirely due to rate cuts and market basket adjustments. Effectively, CMS has been imputing rate reductions for what it believes are agency inappropriate case-mix reporting and utilization. The ultimate challenge facing the industry is rebasing: A rebalancing of sorts, adjusting payments across the 153 HHRGs to more accurately reflect (CMS language) provider costs of providing care and desired outcomes of care as measured by OASIS – the industry clinical and functional assessment tool.

If we follow the Medpac/ACA pathway and assume CMS and Congress stays the course similarly, what we see is as follows.

  • Rebasing in 2014 -2016: The ACA directs the Secretary to accomplish this task with no more than a 3.5% reduction in payments in any one year equalling a cumulative impact (reduction) of 14% by 2016.
  • In 2015 and all following years, market-basket adjustments are offset by a productivity factor.
  • Net one and two above for the actual rate impact – a positive market-basket minus the productivity factor still positive, reduces the rate cut impact, etc.

Medicaid: Coverage under Medicaid for Home Health varies widely state to state.  States that have adopted and aggressively expanded Home and Community Based Services programs offer more expansive coverage than states that have not.  The trend we are seeing literally state to state is a global re-think of HCBS coverage and payments.  HCBS has grown in popularity and states are finding that while attractive, the programs are fraught with adverse selection risk (way more beneficiaries in queue than the states believed or desired and spending levels higher than forecasted).

Under Medicaid, each state is only required to offer coverage for Home Health to individuals receiving federal income assistance (Social Security and AFDC) as well as individuals who meet specific need categories such as the blind, disabled, etc.  States may expand upon the eligibility criteria but are not “required” to under federal law.

We have seen most states widely expand eligibility, principally as a means of forestalling institutionalization.  Most of this expansion occurred pre 2008 or pre financial collapse.  Today, states are re-considering the impact of expansion and many, like California are seeking injunctive relief from CMS.  What we don’t know as of yet is how Home Health, Medicaid and Medicaid expansion all fit together.  We think most states will approve Medicaid expansion hoping that the influx of federal dollars will abate the need to cut programs and payments, some no doubt negatively impacting the Home Health industry.  From our view, it is entirely a per state guessing game as each state has different fiscal challenges and different levels of Medicaid enrollment.  Thus, we also believe each state will de facto ration any new dollars from the federal government into Medicaid programs that the state believes are a priority.  In short, our consensus outlook on Medicaid for Home Health is flat as we are taking a wait and see approach.  We are confident however, that HCBS programs will not significantly grow and in most states, will continue to contract in terms of payment and enrollment (states capping program enrollment).

A final Medicaid comment concerns the number of states aggressively moving toward “managed” Medicaid.  While early in this transition, this movement may prove fruitful for Home Health agencies if they can plow the dual eligible ground and show high quality and lower overall spending.  Managed Medicaid exists, in theory, to help states constrain program growth via redirecting utilization and redirecting payments.  High quality, lower cost services are favored and thus, Home Health agencies properly aligned may do well in this environment.  Careful negotiation and skilled care management of patients between provider segments is required to profit and achieve tangible volume.

Other/Miscellaneous: In 2012, the OIG/CMS released a report regarding inappropriate billing activities among certain Home Health agencies. The report indicated that within certain geographies and among certain agencies, across 6 measures of questionable billing practices, the OIG noted that one in four agencies exceeded the threshold in at least one of the 6 measures used, thus indicating possible billing abnormalities. The states with the most suspect agencies with billing anomalies are Texas, Florida, California and Michigan.

In the 2013 OIG workplan, focus is provided for the HHA face-to-face requirement.  In a 2012 report, OIG found that only 30% of beneficiaries received an actual face-to-face encounter with the physician that ordered their care. Additional focus is provided on agency screening tasks required to eliminate employment of individuals with precluded criminal history. Finally of note, the OIG will focus on OASIS submissions from providers.  Specially, the OIG is looking to make sure providers are submitting their required assessments plus including proper billing codes matching the assessment data.

February 27, 2013 Posted by | Home Health, Policy and Politics - Federal | , , , , , , , , | 2 Comments

Policy News: A Black Friday Edition

Full of turkey and the trimmings and avoiding any retail outlets, Black Friday seems perfect for a quick synopsis of what is happening with health policy.  Fortunately, I’ve maintained a good inventory of “stuff” (not stuffing, though I have an inventory of that too) to cull for content.

  • OIG on SNF Payments: This falls into my “news but not really news” category; another report from the DHHS OIG on Medicare overpayments to providers.  I have the full report for anyone who would like a copy – just e-mail me (e-mail can be found on the Author page) or comment to this post with a contact.  Essentially, what this report indicates is that in spite of repeat changes to the RUGs PPS system and changes primarily to the therapy sections thereto, providers continue to overbill Medicare unnecessarily.  The begging question is whether the overpayments depicted are a function of fraudulent activity (intent) or negligence and misunderstanding of proper billing requirements.  As I work with SNF providers regularly, I’ll state that elements of both are at play.  As I have written before, the system is inherently flawed and thus the incentives align to contribute (greatly) to fraudulent claims.  As intensive therapy services calculated by minutes provided are rewarded at significantly higher rate levels, providers seeking to gain (this is what providers do) additional revenues and cash flow, migrate toward care services and patient mix as determined by assessment and coding, that pays the most.  The intentionality of certain, possibly fraudulent behavior, arises when “upcoding” and a gap between coding for care level and actual service level, is evident.  Per OIG, upcoding accounts for the bulk of the erroneous claims.  Thus, in the majority of specious claims, SNFs identified the resident as requiring more therapy than actually provided and documented.  As a result of OIG’s analysis of the SNF billing practices, they make the following recommendations.
    • Increase and expand the amount of SNF claims reviewed.
    • Use CMS’ fraud prevention tools to identify SNFs that consistently bill higher RUG categories and/or have a disproportionately higher level of certain therapy RUGs than regional or national averages.
    • Monitor compliance with new therapy assessment criteria.
    • Change methodology for determining how much therapy is required by a resident.
    • Change to improve accuracy, certain MDS sections/items.
    • Follow-up with SNFs that have improperly billed claims.

My comments on this report and “what happens next” are simple.  First, SNFs need to heighten their own internal controls and increase their billing knowledge.  All too often I talk with administrators ecstatic about their case-mix and their per diem.  When I ask these same folks when was the last time they looked at their experience compared to regional levels or national levels, I get too often, the “deer in the headlights” stare.  Bottom-line: Audit and benchmark.  No single facility should have such disproportionate claim experience and if so, should have a very solid business case as to why, backed by third-party audits that substantiate the difference.

The CMS OIG workplan on SNF overpayments is titled, “Operation Vacuum Cleaner”. Interesting?  Not so much.  They know this is a huge issue and with the various fiscal issues on the table concerning health policy, a strong vigilance on Medicare overpayments is operative.  I have the 2012 OIG Workplan and again, for anyone interested, contact me for a copy.

Where this report leads is to a complete revamp/overhaul of the Medicare payment system for SNFs.  In the interim, additional rate rebasing is certain to occur as are heighten assessment requirements and again, more changes to the RUG levels and MDS. 

  • Fiscal Cliff: A ton of issues are wrapped in the Fiscal Cliff negotiations and among some the most “sticky” are health policy related.  Republicans are thought willing to concede on certain tax increase components but in return, are requiring a new look at Obama Care provisions and entitlement spending.  Wrapped front-and-center in the Fiscal Cliff debate is the targeted expiration of the current “doc-fix” patch.  Without a settlement, the present patch which temporarily derailed required cuts set by the Sustainable Growth Formula (roughly 26%) kick-in January 1.  On Wednesday, the CBO issued their opinion on the cost of a one-year fix; $25 million.  This number is $7 million higher than an earlier CBO forecast.  The fix would forestall the cuts and restore current-level funding for one year.  Important to note here is that Part B therapy rates are also tied fo the Sustainable Growth Formula and subject to the same levels of cuts.

This is the classic example of how interwoven health policy and entitlement spending is when viewed against issues focused on overall government spending, deficits and taxation.  The real issue here is that the SGR formula is flawed and requires a longterm solution although the same will cost substantially more dollars than any Congress is willing to deal with. What we know is that physicians are already nervous about Obama Care and particularly, the Medicaid expansion components.  Cuts to Medicare payments, already viewed by physicians as less than adequate, will only narrow the supply of principally primary care MDs willing to care for any government payer source.

  • Shortage of Primary Care Doctors: In light of the last point, on Wednesday the Annals fo Family Medicine published a report that by 2025, the U.S. will require and additional 52,000 primary care physicians to meet population demands.  The cause for the increase need per the report is an expanding and aging population coupled with changes in health policy.

This number is interesting but I think a bit misleading.  The two major sub-components that need analysis are the need for “geriatric” trained physicians and the number of physicians needed to care for a patient population with a government payer source.  I hear too often from the physician community, a strong desire to de-aggregate their practices from Medicaid and Medicare patients, principally due to meager reimbursement and increased regulation.  With a major entitlement expansion coming under Medicaid and more states opting to shift administration of their Medicaid plans to manged care insurers, physician participation bears watching.

  • 2013: The Year of the Health Plan: I’m already catching a great deal of scuttlebutt about employers seeking to fundamentally alter their present health insurance plans or, drop plans entirely.  This comes in tandem with the Obama administration’s release of new rules for health plans and insurers effective in 2013.  These rules prohibit insurers from adjusting premiums based on pre-existing conditions or chronic conditions, expand the drugs that must be covered by insurers, specify essential coverage levels on state health exchange plans, and provide flexibility to employers choosing to reward healthy behaviors.  As of today, I’ve only glanced at the rules.  Suffice to say, and based on what I am already hearing, 2013 will be the year of the health plan and it is already interesting to hear the discussions from trade associations, business groups and employers.

November 23, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , | 1 Comment

Fables, Tales and Job Reports

Before too much rancor sets in among readers, I’ll admit that my content has strayed just a bit lately from health policy, etc. to politics and economics.  This too shall pass and rather quickly.  This post is for a friend and reader who e-mailed me earlier about the ADP job report and what it means for the current political debate regarding the economy.  The following is my brief answer.

For those who don’t typically follow economic data, the ADP report is a monthly barometer tied to private, non-farm, non-governmental payroll data.  ADP is the largest processor of payroll in the U.S.  Their report is the result of accumulating payroll data and arithmetically, modeling the data into employment changes (jobs added, jobs lost).  Today’s report indicates that 158,000 private, non-farm, non-governmental jobs were added in October.  On first blush, this is a plus as most economists were forecasting less than 100,000 new job adds in the month.

Politically spun, this a plus for Obama and while not a total downer for Romney, a shot across the bow.  The report rallied the stock market as expected.  Coming less than a week before election Tuesday, the report will either gain momentum based on tomorrow’s BLS report (federal job and employment data from the Bureau of Labor Statistics) or turn idle if the math doesn’t jive.  I suspect a high degree of alignment.

To the title of the post and the reply to my friend and reader: The accuracy of the ADP number and the BLS numbers is highly suspect.  While their respective releases make prominent news their corrections don’t.  Consistently and over time, the corrections are where the real story is.  Before anyone, including my friend, “jumps the shark” (a reference to Happy Days and Fonzie) and takes today’s report and tomorrow’s report as indicative of anything, let alone a sign to vote one direction of the other, consider the following.

  • Even at 158,000 new jobs for October, the ADP report if accurate only indicates very slow growth.  Job losses for the month were still above 350,000.  Push and pull at the two with fifth grade math skills and a bit of common sense, this is not a sign of robust growth or even a foot-hold on longer term recovery.
  • The ADP report does not cover the “core” of relative job data.  For example, we don’t know “what type of jobs” (part-time, full-time, permanent, etc) or at what rate of pay.  As is typical at this time of the year, seasonal retail is bulking-up and part-time, low to moderate wage jobs are added.  These are not permanent jobs with benefits or for that matter, “game changers” for recovery.  Similar to the last BLS report that dropped the unemployment rate, free-lance, part-time, ad hoc and so forth can be counted a variety of ways and reported as employment or jobs.
  • ADP has recently changed its calculation methodology to “more accurately reflect” real time changes in employment.  Important to note is that ADP’s data is proprietary and only results are shared.  A quick glimpse difference in this report is a rather large shift to job growth among large businesses.  While I won’t state openly that this is troubling from a validity standard, it is outright curious as to this point and through recent periods, large business job growth has been “zip”.  Also somewhat curious to me is the strong results in construction job growth against a decrease in manufacturing.  I buy the manufacturing but I question a 23,000 jump in construction if for no other reason than I’d like to see the type of job, especially at this time of year.  True, new housing construction is up but commercial is flat and government spending for infrastructure is at low tide.
  • Finally, ADP like the BLS data is consistently “wrong” and not just by a little.  Post period revisions are common and rarely, especially of late, are the revisions “up”.  For example, the BLS data and the ADP data are effectively the same in their raw state yet the difference between the two over recent periods (last three years) annualized to 400,000 jobs; ADP overstatement.  The ADP methodology revision I referred to is supposed to correct this gap but as it is new (first month), only time will tell.  I am skeptical at best.  Under the old estimating method, September’s report was 162,000 new jobs later revised to only 88,000.

Economic data like jobs reports, etc. point-in-time or snapshot reminds me of a phrase used by former British Prime Minister Benjamin Disraeli: “There are three types of lies – lies, damn lies and statistics”.  For any of this data to truly become meaningful from a complete economic perspective, it must be consistent over time.  Jobs are only a fraction of the issue with the greater weight of type of job, wage, benefits, sector, etc. all required additions.  Similarly, new jobs as a sole measure must balance out organic labor growth (new workers), existing unemployment levels at the U6 level (the total number of people unemployed and underemployed including those who have given up looking for a job which today remains precariously close to 15%), and rolling job losses.  At 158,000, if accurate, this is approximately a net “gain” of 58,000 jobs as by consensus measures, 100,000 new workers enter the economy monthly.  The truest measures are wages/income and percent of total population capable and willing to work, working/employed on a consistent basis.  Don’t look for this economic measurement to be truly positive and reflective of a go forward change in momentum prior to next Tuesday or for that matter, any time in the near future.

November 1, 2012 Posted by | Policy and Politics - Federal | , , , , , , , | 4 Comments

Presentation from Leading Age Annual Conference in Denver

I have uploaded the Power Point portion of the presentation I did at the recent Leading Age Annual Meeting and Conference in Denver per reader and attendee request.  You can find it and download it on the Reports and Other Documents page on this site.  The presentation is titled, “Value Propositions and Marketing”.  The content essentially covers the application and development of economic value propositions and their resulting use in developing marketing and pricing strategy.

October 25, 2012 Posted by | Senior Housing | , , , , , , , | Leave a comment

What’s Trending: A New Feature

By popular request, I’ve created a new feature to this site to cover issues and topics “in brief” that I am watching or in some cases, directly tangential to by engagement.  Weekly, my inbox is awash in “what have you heard?”, “are you seeing this?”, “what’s going on with?”, etc., type questions.  I do try to answer them all to the extent possible and then one day, someone asked if I could compile my comments into a weekly or bi-weekly piece and route it or post it accordingly.  This is my first compilation of what I think, will occur on an every week to ten-day basis (if I can keep up).

  • Supreme Court Decision: Thursday is the day we learn the decision of the Court regarding the future existence of the PPACA; the focal discussion on the individual mandate.  My reasoned opinion, obtained in part from my myriad of qualified and unqualified sources is that the Court will find the mandate unconstitutional.  Personally, I believe that the Court will also effectively reason that the core of the PPACA then falls, applicable to the exchanges, Medicaid expansion, and the expanded benefit and coverage criteria mandates for commercial/private insurance policies.  I am less clear about how the language will be interpreted from a policy perspective but suffice to say, I am solidly in “the camp” of those who believe the PPACA will be shot full of holes on Thursday, left to crumble as it is structurally gutted.
  • Post PPACA Demise: Regardless of the ultimate outcome, I am advising providers to look at the core concepts embedded in the PPACA and to quickly understand, the health care landscape has fundamentally changed.  Remember, CMS has broad and powerful rule-making capabilities and what once may have been a part of the PPACA can quickly return in elemental form via administrative law.  For those who will joyfully celebrate the end of the PPACA, I offer a quick refresher regarding the “law of unintended consequences”.  An activist CMS/DHHS can quickly re-visit a number of core concepts and apply the same with perhaps, nuances and twists that are more onerous than applied in the PPACA.  Thus, I suggest everyone stay close to a script that focuses on quality based payments, bundled payments, new network and delivery systems (ACOs), re-hospitalizations, new outcome measures, coordinated care, and Medicare payment restructuring and re-basing (the latter necessitated by the poor fiscal outlook for Medicare, PPACA notwithstanding).
  • Hospital Observation Stays Rising: Starting October 1, hospitals will receive weighted payment reductions for re-hospitalizations occurring within 30 days post discharge for Medicare patients hospitalized concurrent with one of three DRGs – heart failure, pneumonia or MI/heart attack.  Payment reductions will occur for all Medicare payments for hospitals that rank retrospectively, in the bottom quartile of performance on re-admission rates compared to applicable peers.  In October 2015, additional at-risk DRGs are added and monitored for re-admissions.  The trend that we are seeing today is for hospitals to take a “cautious” approach with Medicare patients presenting via outpatient settings, nursing homes, and through the Emergency Department as applied to admissions.  While penalties are not yet in-force, hospitals are mindful of the re-admission implications and are using observation stays as a vehicle to expand care without triggering an inpatient admission and thus, a possible adverse event.  I am not yet seeing a diagnosis correlation to these events simply a Medicare implication.  The downstream implication is that a hospital discharge to an SNF may not include a three-day qualified “inpatient” stay for Medicare coverage.  I hear increasing complaints from SNFs about this issue and I advise the same tactics; get to the hospital in-person to qualify your discharges and do your homework.
  • Post Acute Care Transitions: In light of the topic above and the focus on avoidable re-admissions, post-acute providers need to get on-board and quickly.  Hospitals are loath to do business with weak post-acute providers that beget re-admissions in 30 days, regardless of the original hospital admission DRG; too much risk.  SNFs, home health providers and to a lesser extent, hospices need to focus on tightening their care transition approaches and increase their ability to insulate against unnecessary discharges to the hospital.  Increasing internal clinical competence, strengthening physician relations, improving pre-admission assessments, improving staffing particularly on off-shifts and weekends, developing transition algorithms for various disease states and routine discharge causes, and working with families via education are all key components in improving post-acute care transitions.
  • Hospice Still under Watch: I am hearing constantly from hospices that are being probed, struggling for referrals and having re-certs denied.  Frankly, this isn’t surprising as almost week by week, we learn of another settled Qui Tam case involving False Claims Act violations.  The most recent occurred with Hospice Care of Kansas, strikingly similar to others within the industry.  The Feds smell blood in the water here and as I have cautioned before, one public Qui Tam action begets others, particularly when large dollars are involved.  Whistleblower actions are a new cottage industry within health care and hospice claims are low-hanging fruit.  Here’s the take away and for those who haven’t heard me lecture on this subject or read other pieces that I have written on it, this isn’t “news”.  Hospice is a niche industry and under Medicare, very oddly regulated with ill-defined eligibility and coverage criteria.  The Medicare guidelines are frankly dated and the payment, inversely proportionate by setting and by length of stay.  The combination of dated regulations, improperly incentivized payments, and non-diagnosis specific coverage determinations can’t help but create an environment of fraud.  Mix Medicare with Medicaid payments that over-arch within nursing homes and certain home/community based settings and effectively, open flame is applied to a combustible liquid.  In reality, there are too few organically qualified, terminally ill Medicare patients that desire and elect hospice, compared to the number of Medicare hospice providers.  By “organically” I mean patients with classic end-stage diseases or conditions such as cancer, end-stage Parkinson’s, certain categories or stages of heart failure, COPD, etc.  In these cases, certainty without treatment and intervention is known.  Expanding the eligibility criteria (for providers) under Medicare is fairly easy as diagnostic codes are not required for coverage nor really, is evidence of decline in status though recently via probe activity on recertifications, I have seen situations where CMS has denied continuation of coverage for lack of evidence of terminality (evidenced by condition or status deterioration).  Bottom-line: Hospice will remain under scrutiny for quite some time and the net result, a stagnant environment for referrals and new patients will persist.  I expect the industry to shrink in total volume or marginally, remain flat over the next three years.

I hope everyone likes this new feature and for regular readers and followers, please feel free to keep your comments and questions flowing. I’ll get to them as best as I can.

June 26, 2012 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | 1 Comment