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Medicaid Reform: Hope for Taming the Gorilla?

A few weeks back, I wrote a piece regarding Medicaid and its ties to the fortunes (lack thereof ) of some the largest SNF provider groups. Today a high percentage of resident census connected to Medicaid as a payer source is the largest contributor to the flagging financial condition of Genesis, HCR/ManorCare, Signature, and others.  With large losses stemming from inadequate Medicaid payments and shrinking sources of offset via Medicare (for a number of reasons), these organizations are perilously close to bankruptcy (or are fundamentally there as is the case with HCR/ManorCare).  For reference, see the previous post at  http://wp.me/ptUlY-mC

As I talk with investors across the nation (and internationally in some cases) interested in the fortunes of the REITs that hold a ton of the Genesis, HCR/ManorCare, et.al., assets (buildings) and or the fortunes of the companies themselves (Genesis is publicly traded with a stock value current, hovering just above $1 per share), I field the same question(s) repeatedly.  How did we get here and what needs to change for these companies to survive, or can they?  Quickly, allow me to recap where the SNF industry and particularly the groups aforementioned and others like them, is at.

  • First and most crippling, their dominant payer source is Medicaid. In the case of Genesis and HCR/ManorCare, above 66% on average in each SNF.
  • Medicare Advantage is a growing piece of the Medicare payer equation. In some markets, Medicare Advantage plans account for more than 50% of the Medicare patient days in a SNF referral stream.  These payers (the Advantage plans) are paying at Medicare MINUS levels.  Medicare minus 10% is phenomenal, if attainable. In most markets the discount is greater.
  • Most markets have a surplus of available SNF beds (nationally too).  Competition among providers is fierce for quality mix (better payers).  Because of this, the Advantage plans do not (yet) need to negotiate favorable terms as someone, somewhere will accept the discount; preferable to the vacant bed.
  • The policy landscape is adjusting to a new reality in which Stars matter.  Higher rated (Five Star) providers are now favored by payers, providers and consumers alike.  The steerage has started and it won’t subside.   Hospitals to physicians to consumer groups and payers preference is toward providers rated 4 Stars or higher.  While this pressure is yet overt, its subtle and growing and I hear it constantly as hospitals for example, won’t abide readmission risk and if they are in bundled or other at-risk payment projects (physicians too), they seek better partners (quality ratings) to handle their referrals.
  • There is a distinct preference shift among physicians, consumers and payers (bundled for example as well Medicare Advantage) to minimize inpatient stays both by length or by necessity.  Certain orthopedic profiles that once were a SNF staple (joint replacements) good for a 20 plus day Part A stay at high therapy RUGs either don’t last 20 days or don’t get referred at all.  I am seeing a wholesale shift of these patients to home health and outpatient primarily, followed by short (demanded) stays, 40 to 50% fewer in days, on an inpatient basis.  This volume change has demonstrably hurt certain SNF provides formerly reliant on it to offset Medicaid losses.
  • The physical plant assets are old, oversized, and dated.  The new, successful SNF model is smaller buildings, all private rooms, nicely appointed.  Genesis, et.al., represent some of the largest and oldest plant assets in the industry.  They are inefficient, institutional, and in many cases, burdened by high rent payments and comparably, high levels of deferred upkeep and maintenance (particularly interiors and movable equipment). Wholesale renovation is impractical as the investment is greater than the return on assets attainable now and across the near-horizon.
  • The regulations, especially the newly updated Federal Conditions of Participation for SNFs, phasing in as I write, are crippling to these providers.  These new regulations are coming with increasing cost while reimbursement options are flat to decreasing (Missouri and Kansas just had Medicaid rate cuts).  The Medicare increase for FY 2018 is 1%.  These new regulations require in some cases, wholesale changes to how SNFs operate when it comes to analyzing staffing needs, resident preferences, food and cultural issues, etc., all concurrent to REDUCTIONS in Medicaid rates.

So, to the point of this piece and the question that bears: What needs to change with respect to Medicaid to abate the problems present?  Secondarily, is there a survival/revival scenario for Genesis, Signature, HCR, et.al.?  I’ll answer the second question first as the first, is harder to sort through.

  • The business model of Genesis, Signature, etc. today is misaligned to the industry revenue/payer and market incentives.  There simply is no quick fix to repurpose the assets and to change the quality ratings and payer-mix, to make many of the facilities viable.
  • Their fixed costs are too high in terms of rent payments.  The REITs have a valuation problem as their books hold an asset today at a value that is by all definitions, impaired.  The valuation is based on cash flow which simply, in terms of rent payments, is no longer attainable.  Think about it: Rent coverage levels below 1 aren’t sufficient today to keep payments current.   A few articles back on this site, I wrote a piece regarding “Stranded Assets”.  This covers these concepts in-depth: http://wp.me/ptUlY-ms
  • Supply exceeds demand in many markets in terms of bed capacity.  Current SNF occupancy runs in the 85 to 88% range in most markets.  This today, is net of beds removed from service in many states to avoid paying (additional) bed tax or getting hit with Medicaid rate reductions and a loss of bed-hold payments for failure to meet occupancy levels (typically 90 plus percent).

The answer: Survival as is not likely and the industry needs to re-base again in terms of valuations, operators and capacity.  The underlying forces that took us to this current paradigm will not shift soon enough or demonstrably favorable (revenue/income), to alter the course for these providers.  I offer that this period is analogous in the incentive changes to the arrival of PPS for the industry in the early 90s.  Rebasing occurred as cost-rate payments disappeared and the rewards tied to “spending” more changed.  During this time, seven of the top 10 SNF organizations went bankrupt, some never to return to publicly traded status.

Turning to the 800 pound gorilla or Medicaid.  Medicaid reform is a significant challenge and without something changing from its present course for SNFs, the fortune for the SNF industry and this payer source is below bleak or grim.  For Medicaid as a payer, SNF care is a small portion of the overall outlay and actually shrinking as other programmatic expansions have consumed growing amounts of resources (Medicaid expansion).  The program drivers are primary physician and hospital care. The primary users of Medicaid today are working poor and their ranks are growing – rural and urban.   As applicable to seniors, Medicaid-waiver benefits have expanded at a far greater rate than SNF care utilization (which has continued to decrease).  Waiver programs, popular for keeping seniors out of institutional settings, have expanded as the needs of an aging society have expanded.

Medicaid is funded principally, by States attaining various levels of revenue, allocating the same toward a Federal funding approach that matches the revenue, and then forwards the Federal share to the state.  As the Feds choose to incent certain Medicaid programmatic initiatives, the Feds may sweeten the pot with enhanced matching dollars or a full (initial ) funding approach such as under Medicaid Expansion.  The flaw in any of these approaches is the temporary nature of the Federal cash subsidy and the limitations imposed to the State that prohibit the State from cutting the outlays conditioned on the Federal incentive.  In other words, the Vegas slot machine effect (just enough payoff to keep you seated and pumping-in dollars anticipating a bigger payoff).  States get hooked and the resort they have to curtailing or balancing their piece of the Medicaid pie (once the Federal piece shrinks) are raising revenue (typically very tough through income taxes hence the bed tax games, tobacco tax games, and the inter-fund related robbery that goes on state to state among schools, highways, gasoline taxes, casino funds, etc.) or cutting provider payments.  It is the latter that has hurt the SNF industry by reference, in this article.

Medicaid in its current form is a broken system and one that was bastardized to break with the ACA.  Expansion hastened its demise, though it was on life support when the ACA was passed and implemented.  It has become a catch-all basket of anything entitlement, non-Medicare and as a result, it is a mess.  The sad reality is every policy analyst with any cred knows it as does all of the House, the Senate, and everyone at DHHS.  The difficulty is how does something like this get fixed.  The prevailing answer: Punt it back to the states and give them flexibility to “innovate” otherwise known as, the Block Grant approach.  Instead, as I conclude this piece with others sure to follow, consider the following.

  • For an SNF, Medicaid is a rate drag – a loser producing daily revenue shortfalls to cost.  It’s not that the rate may be inadequate its that the costs are too high.  The point here is that without wholesale federal regulatory relief from rules and requirements that haven’t shown any evidence of producing better care outcomes, their is no opportunity to reform Medicaid as a payer adequate enough in rate, for a SNF to survive with a majority Medicaid census.  Simple economics apply: Either rate rises to offset cost increases or costs decrease to allow rate to be adequate to produce and sustain, product quality.  The gap between regulatory increases and overreach and rate inadequacy (Medicaid and to a lesser extent, Medicare) is widening.
  • Block grants won’t work as the whole pie is the reference point rather than the programmatic pieces.  Trust me, the parts of Medicaid have considerably different contextual differences and economic and social drivers.  Funding must be de-aggregated and reimagined at the different levels, separately.  The needs of children, families, etc. are so markedly different from the SNF and waiver needs of the elderly as are the economic and social drivers.  Market strategies can and likely will work with the younger groups whereas the elderly, need a social construct (ala Pace approach) model to achieve investment and outcome balance.
  • The benefits need review and re-think.  This is true however, of all federal entitlements.  Here, states given latitude may have some significant advantage in revamping Medicaid.  The Feds, in a Block Grant approach must be the “bank” or the “capital” not also the architect, general contractor, and job-site superintendent.
  • The Medicaid incentives need reversing and a growing emphasis on private initiatives and insurance needs to occur.  The Feds can play an active role by creating avenues for private investment for retirement, accumulation of capital, use of estate and wealth transfer resources, etc. such that over time, the obligations of government to fund large pieces of the social fabric and needs of old age care, shift more in-balance, to each citizen.  The return on investment of tax advantaged, flexible investing for private insurance, private wealth accumulation used for care and service needs after 65, etc. is far greater (positive) than the loss of or revenue offset of the tax advantage.  We know this to be true via HSAs and 401(k)s and IRAs.
  • Finally, reforming health care will reform (significant step forward) Medicaid and the drivers of cost.  Fixing Medicaid is not a stand-alone issue, so to speak.  The challenge in the U.S. today is to REFORM health care, not reform how it is paid for or who has coverage and how does one access the same.  Spending on health care in the U.S. is disproportionately higher than all other world nations and our return in terms of life expectancy and QUALYs, substandard.  We are investing a $1 and losing 20 or so cents on our investment.  We need to focus on “bending the cost-curve” and not the insurance and welfare/entitlement pieces.  Regulatory reform and streamlining payment and program participation would be a great, simple first-step.

 

 

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September 14, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

The SNF 800 lb. Gorilla – Medicaid

There is an old joke/riddle that goes like this: “Where does an 800 lb. gorilla sit? Answer: Anywhere it wants to”. For SNFs and REITs today, that gorilla is Medicaid.  Sure, there are numerous industry headwinds that SNFs face in terms of financial performance;

  • Rising percentage of Medicare Advantage patients as part of the payer mix with implied discounts to fee-for-service of 10% or more.
  • Additional regulatory costs stemming primarily from the new Conditions of Participation, released in 2016.
  • Value-based purchasing.
  • Five Star system savvy referral managers that are steering volumes to certain providers
  • Rising labor costs, primarily at the lower end of the labor pool (CNA, food service, housekeepers, etc.) representing the 50th or more percentile of the SNF labor budget
  • Bundled payments in certain markets
  • Growing diversion of former non-complicated orthopedic patients away from IRFs and SNFs to home health and outpatient

Yet is spite of this list, not one or even a combination is as crippling as the impact of a high percentage of Medicaid patients within an SNF payer mix.

Take Genesis for example.  Genesis stock trades at just above $1.00 per share.  Genesis’ average payer-mix across its SNFs is 73% Medicaid.  This means that 27% of  the remaining payers must make-up for a negative break-even margin rate of no less than 30% for each Medicaid patient.  In some states, the disparity is greater.  In other states, the disparity might be less but the state budget woes delay payments or issue IOUs (Illinois) causing the SNF to finance its own below-cost receivables.  Recent news that Genesis may be the next significant REIT holding default is far from fantasy.

The seemingly large, formerly well-capitalized SNF chains are in peril.  HCR ManorCare is in default to HCP (its primary REIT) to the extent that HCP is seeking receivership for the HCR holdings.  The portfolio has a rent coverage ratio of .76x at the facility level and less than 1x globally.  Signature is in the same boat.  Both have compliance problems with Signature having so scarce a margin that it cannot adequately staff or provide for residents in certain locations such as Memphis (facility denied payment, residents relocated).  HCR faces federal Medicare fraud action(s) that will likely lead to settlement payments, etc. for over-billing in excess of $100 million.

Among these troubled SNF providers, one common thread persists – high average Medicaid census (above 66%) as the primary payer mix in their buildings.  With this high mix of Medicaid patients comes staggering facility level losses or revenue shortfalls that must be made-up by other payers.  Consider Wisconsin as an example.  Wisconsin is a state that maintains a balanced budget and generally, a surplus.  It has no issues paying its bills so SNFs do receive timely payment.  Wisconsin however, grossly underpays its SNFs for their Medicaid residents to the tune of an average of a daily loss of $60 per day in 2013.  Between 2013 and 2015, Wisconsin provided no Medicaid rate increase.  All tolled, Wisconsin facilities experienced a Medicaid loss in this period exceeding $300 million.  This gap is exceeded only by the states of New York and New Jersey.  In Wisconsin, the Medicaid loss for an average SNF patient is made up (if possible) by other payers.  That amount today is well over $100 per day, excluding the cost of an imputed bed tax.  As the average Medicaid census is 65%, 35% of all other payers must pay $100 more to cover the Medicaid loss, before any other margin is applied.

Doing the math: A 100 bed facility with 100 residents has 65 covered by Medicaid. The State pays $175 per day for each Medicaid resident, on average.  The Facility costs are $60 per day higher or $235 per day.  In total, the Medicaid loss per month then is $60 x 65 x 30 (30 day month) or $117,000.  To break-even for the month, the remaining 35 patients must pay $346.43 per day or $235 per day in facility costs plus and additional $111.43 per day to recoup the loss from the Medicaid census. This of course does not include any additional costs related to a bed tax or account for any margin.

While the example is illustrative, it is not an atypical story state to state, save the unique twists that are part of every state program.  For example, Kansas chose to convert its Medicaid program to a “managed” program (in 2014) believing it could run more efficiently, save dollars on administrative costs and still provide adequate reimbursement.  As most states, Kansas chose to “bid” its program to various third-party administrators (insurers such as United Healthcare).  Unlike most states, Kansas chose to convert its entire Medicaid program rather than take a phased-in approach.  For SNFs, this approach has been a disaster.  The bulk of Kansas Medicaid recipients are rural.  Enrollment has been a nightmare and qualification of eligibility even more so. None of the participating administrators were prepared and had systems in-place to qualify promptly, newly eligible residents.  The net is many SNFs face technical payment delays due to having to manage multiple payers plus, difficulty in getting approval for residents that are Medicaid “pending”.  Receivables in total and days in receivable have skyrocketed and the state has yet to make many facilities current or whole.  And, because rate is an issue as is the state budget, the bed tax was increased by $800 per bed, per year.  In doing so, any facility with less than a 50% Medicaid census loses money on the bed tax (additional rate generated by Medicaid less than the bed tax increase).

Where this issue resolves is not apparent.  Proposals from Congress to block grant Medicaid to the states almost universally conclude with Medicaid rate reductions for SNFs.  For some states such as Kansas and Missouri, the outlook is a nominal reduction of 2 to 3% (though this is hardly nominal for the SNFs) in Medicaid spending/support.  The reason?  Rates and program expenditures are meager and lean to begin with.  In Colorado and New Jersey, overall Medicaid spending would reduce by as much as 20% translating to a crippling rate reduction without any additional state support (added state funding).  Both states were Medicaid expansion states under the ACA.

As for the survival and fortune of the SNF industry, the outlook for certain segments and providers is rather bleak.  The Medicaid story does not come with additional dollars for rate support or spending – just the opposite.  While block grants may give states renewed opportunities for innovation, the costs that drive SNF spending are not within the purview of a state to change – namely regulation, capital and staff.  The greatest flexibility a state may have is to infuse additional dollars and spending into SNF diversion programs – namely Home and Community Based Services.  These programs are wonderful for certain levels of care needs but for those frail seniors that typify the long-term resident in a SNF today, they offer no hope or savings.  Like it or not, SNF care for some is very cost-effective and necessary due to the needs of the resident (multiple chronic health problems, lack of family and social supports, mental/cognitive impairments, etc.).

In a recent call with an investment analyst from a private equity group, I was asked if “all was lost” for the sector.  The answer I gave is “no” but for some, the ship is definitely taking on water and it may be too late to avoid sinking.  This is definitely true for HCR ManorCare and perhaps for Genesis.  The question today is the collateral damage that may inure to REITs and other investors.  In brief;

  • Facilities with Medicaid census in excess of 50% will find it exceptionally difficult to generate enough revenue via other sources to cover the Medicaid losses.  Medicare simply is not sufficient in patient volume or rate to offset the losses.
  • Reducing Medicaid occupancy is difficult and not quick.  States do not provide a clear-path for this process and federal regulations don’t allow facilities to simply shed residents because of inadequate payments.
  • Many of the facilities with large (proportionate) Medicaid census are older and typified by bed counts above 75, semi-private rooms, and to a large degree, deferred cosmetic and maintenance issues.  In short: they are below the current market expectation for a paying SNF customer.
  • Taking over the operations or acquiring a number of these facilities with high Medicaid census, doesn’t change the fortunes of the same, directly or quickly.  While fixed costs in the form of rent payments may reduce, the operational headwinds remain the same.  A new operator cannot simply transfer out, Medicaid patients.  Even with a bed reduction plan approved by the State, the SNF is responsible for each resident, relocation, etc.  This process if not fluid or inexpensive.  Changing payer mix is difficult, slow and while occurring, expensive.  Frankly, I have never seen the same done to a facility that was predominantly, Medicaid.
  • The market for these facilities is minimal at best. For REITs, expect valuation changes (negative) as the holding value current is based on acquisition cost and income valuation tied to higher rent multiples.  Clearly, with rent coverage levels below 1, re-basing and re-balancing is next (if not already starting).

August 21, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | 4 Comments

SNF Fortunes, HCR/Manor Care and Salient Lessons in Health Care

Long title – actually shortened.  In honesty, I clipped it back from: SNF Fortunes, HCR/Manor Care, Five Star, Value-Based Payment, Hospitals Impacted Too, Home Health and Hospice Fortunes Rise, and all Other Salient Lessons for/in Health Care Today. Suffice to say, lots going on but almost all in the category of “should have seen it coming”.  For readers and followers of my site and my articles and presentations/speeches, etc., this theme of what is changing and why as well as the implications for the post-acute and general healthcare industry has been discussed in-depth.  Below is a short list (not exhaustive) of other articles I have written, etc. that might provide a good preface/background for this post.

Maybe a better title for this post is the question (abbreviated) that I am fielding daily (sometimes thrice): “What the Heck is Going On?” The answer that I give to investors, operators, analysts, policy folks, trade association folks, industry watchers, etc. is as follows (in no particular order) HCR/Manor Care: This could just as easily be Kindred or Signature or Genesis or Skilled Healthcare Group…and may very well be in the not too distant future.  It is, any group of facilities, regardless of affiliation, that have been/are reliant on a significant Medicare (fee for service) census, typified by a large Rehab RUG percentage at the Ultra High or Very High level with stable to longer lengths of stay to counterbalance a Medicaid census component that is around 50% of total occupancy.  The Medicaid component of census of course, generates negative margins offset by the Medicare margins.  For this group or sub-set of facilities in the SNF industry, a number of factors have piled-on, changing their fortune.

  • Medicaid rates have stayed stable or shrunk or state to state conversions to Managed Medicaid have slowed payments, added bureaucracy, impacted cash flows, etc.  This latter element in some states, has been cataclysmic (Kansas for example).
  • Managed Medicare has (aka Medicare Advantage plans) increased in terms of market share, shrinking the fee-for-service numbers.  These plans flat-out pay less and dictate which facilities patients use via network contracts.  They also dictate length of stay.  In some markets such as the Milwaukee (WI) metro market, almost 50% of the Medicare volume SNFs get is patients in a Medicare Advantage plan.
  • Value-Based Care/Impact Act/Care Coordination has descended along with bundled payments in and across every major metropolitan market in the U.S. (location of 80 plus percent of all SNFs).  This phenomenon/policy reality is dictating the referral markets, requiring hospitals to shift their volumes to SNFs that rate 4 Stars or higher. The risk of losing funds due to readmissions, etc. is too great and thus, hospitals are referring their volumes to preferred environments – those with the best ratings.  The typical HCR/Manor Care facility is 3 stars or less in most markets.
  •  Overall, institutional use of inpatient stays is declining, particularly for post-acute stays.  Non-complicated surgical procedures or straight-forward procedures (hip and knee replacements, certain cardiac procedures, other orthopedic, etc.) are being done either outpatient or with short inpatient hospital stays and then sent home – with home health or with continuing care scheduled in an outpatient setting.  Medicare Advantage has driven this trend somewhat but in general, the trend is also part of an ongoing cultural and expectation shift.  Patients simply prefer to be at home and the Home Health industry has upped its game accordingly.

Adding all of these factors together the picture is complete.  Summed up: Too much Medicaid, an overall reduction in Medicare volume, an overall reduction in length of stay, and a shift in the referral dynamics due to market forces and policy trends that are rewarding only the facilities with high Star ratings.  That is/will be the epitaph for Manor Care, Signature, etc.

Five Star/Value-Based Care Models, Etc.: While many operators and trade associations will say that the Five Star system is flawed (it is because it is government), doesn’t tell the full story, etc., it is the system that is out there.  And while it is flawed in many ways, it is still uniformly objective and its measures apply uniformly to all providers in the industry (flaws and all).  Today, it is being used to differentiate the players in any industry segment and in ways, many providers fail to realize.  For example, consumers are becoming more savvy and consumer based web-sites are referencing the Five Star ratings as a means for comparison.  Similarly, these same consumer sites are using QM (quality measure) data to illustrate decision-making options for prospective residents.  Medicare Advantage plans are using the Five Star system.  Hospitals and their discharge functions use them.  Narrow networks of providers such as ACOs are using them during and after formation.  Banks and lenders use the system today and I am now seeing insurance companies start to use the ratings as part of underwriting for risk pricing (premiums).  Summed up: Ratings are the harbinger of the future (and the present to a large extent) as a direct result of pay-for-performance and an ongoing shift to payments based on episodes of care and via or connected to, value-based care models (bundled payments, etc.).  Providers that are not rated 4 and 5 stars will see (or are seeing) their referrals change “negatively”.

Home Health and Hospice: The same set of policy and market dynamics that are adversely (for the most part) impacting institutional providers such as SNFs and hospitals is giving rise to the value of home health and hospice.  Both are cheaper and both fit the emerging paradigm of patients wanting options and the same being “home” options.  Hospice may be the most interesting player going forward.  I am starting to see a gentle trend toward hospices becoming extremely creative in their approach to developing non-hospice specific, delivery alternatives.  For example, disease management programs evolving within the home health realm focused on palliative models, including pain and symptom management.  Shifts away for payment specific to providers ala fee-for-service will/should be a boon for hospices.  The more payment systems switch to episode payments, bundled or other, the more opportunity there is for hospices to play in a broader environment, one that embraces their expertise, if they choose to become creative.  Without question, the move toward less institutional care, shorter stays, etc. will give rise to the home care (HHA and hospice) and outpatient segments of the industry.  As fee-for-service slowly dies and payments are less specific (post-acute) to place of care (institutional biased and located), these segments will flourish.

Hospitals Too: The shift to quality providers receiving the best payer mix and volume and payments based on episodes of care, etc. is impacting hospitals too.  This recent Modern Healthcare article highlights a Dallas hospital that is closing as a result of these market and policy dynamics: http://www.modernhealthcare.com/article/20170605/NEWS/170609952?utm_source=modernhealthcare&utm_medium=email&utm_content=20170605-NEWS-170609952&utm_campaign=dose

REITs, Valuations, M&A, and the Investment World: As we have seen with HCR/Manor Care and Signature (likely others soon), REITs that hold significant numbers of these SNF assets have a problem.  These companies (SNF) can no longer make their lease payments.  Renegotiation is an option but in the case of Signature, the coverage levels are already at 1 (EBITDAR is 1 to the lease obligation).  IF and I should say when, the cash pressure mounts just a bit more, the coverage levels will need to fall below 1.  This significantly impacts the REITs earnings AND changes the valuation profile of the assets held.  What is occurring is their portfolio values are being “crammed” down and the Return on Assets negatively impacted.  And for the more troubling news: there is no fluid market today to offload underperforming SNF assets.  Most of the Manor Care portfolio, like the Genesis and Skilled Healthcare and Kindred portfolios, is facilities that are;

  • Older assets – average age of plant greater than 20 years and facilities that were built, 40 years or more ago.  These assets are very institutional, large buildings, some with three and four bed wards, not enough private rooms and even when converted to all private rooms, with occupancy greater than 80 or so beds with still, very inefficient environments.  Because so few of these assets have had major investments over the years and the cash flow from them is nearing negative, their value is negligible.  There are not buyers for these assets or operators today that wish to take over leases within troubled buildings with high Medicaid, low and shrinking Medicare, compliance (negative) history, etc.  Finally, the cost to retrofit these buildings to the new paradigm is so heavy that the Return on Investment (improved cash earnings) is negative.
  • Three Star rated or less with fairly significant compliance challenges in terms of survey history.  Star ratings are not easy to raise especially if the drag is due to survey/compliance history.  This Star (survey) is based on a three-year history.  Raising it just one Star level may take two to three survey cycles (today that is 24 to 36 months).  In that time, the market has settled again and referral patterns concretized – away from the lower rated providers.
  • In the case of Manor Care, too many remain or are embroiled or subject to Federal Fraud investigations.  While no one building is typically (or at all) the center of the issue, the overhang of a Federal investigation based on billing or care impropriety negatively impacts all facilities in terms of reputation, position, etc.

As “deal” volumes have shrunk, valuations on SNF assets are getting funky (very technical term).  The deals that are being done today are for high quality assets with good cash flow, newer buildings or even speculative deals on buildings with no cash flow (developer built) but brand-new buildings in good market locations.  These deals are purchase and operations (lease to operators and/or purchased for owner operation).  Cap rates on these deals are solid and range in the 10 to 12 area.  Virtually all other deals for lesser assets, etc. have dried up.

Final Words/Lessons Learned (or for some, Learning the Hard Way): As I have written and said ad nausea, the fee-for-service world is ending and won’t return.  Maximizing revenue via a focal opportunity to expand census by a payer source, disconnected from quality or services required, is a defunct, extinct strategy. That writing was on the wall years ago.  Today is all about efficient, shorter inpatient stay, care coordination, management of outcomes and resources and quality.  The only value provider assets have is if they can or are, corollary to these metrics.  By this I mean, an SNF that is Five Stars with modern assets and a good location within a strong market has value as does the operator of the asset.  An SNF that is Two Stars with an older building, a history of compliance problems, regardless of location, 50 percent Medicaid occupied has virtually no value today…or in the future.  Providers that can network or have an integrated continuum (all of the post-acute pieces) are winning and will win, especially if the pieces are highly rated.  Moreover, providers that can demonstrate high degrees of patient satisfaction, low readmission rates, great outcomes and shorter lengths of stay are and will be prized.  The world today is about tangible, measurable outcomes tied to cost and quality.  There is no point of return or going back.  And here’s the biggest lesson: The train has already left the station so for many, getting on is nearly impossible.

June 14, 2017 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

SNF Outlook, REITs, Kindred and Where to From Here

As the title of this post implies, a review of the status of the SNF industry is as much about current issues begat by past issues influenced by an outlook that is finally, starting to congeal.  Writing that (sentence) was convoluted enough and that is exactly, where the bulk of the industry issues are.  To begin, an operative “influences” framework is required.

  • Federal Conditions of Participation: After years of work and inaction, a final rule updating the Federal Conditions of Participation was released in September of 2016.  These Conditions haven’t updated (substantively) since the early 90s via implementation of OBRA and PPS.  Suffice to say, the update is sweeping; so much so that implementation of the revisions is in year over year phases.  Complying with all of the Conditions will cost SNFs tens of thousands of dollars, if not more.  Implementation and survey activity on the new Conditions begins November 2017.  Reference posts from this site are here: http://wp.me/ptUlY-kL    http://wp.me/ptUlY-kU    http://wp.me/ptUlY-lf
  • Value-Based Purchasing: Pay for performance is coming (or almost here) as the measurement period for SNFs has occurred and the timeframe for making improvements in performance, particularly on avoidable readmissions is NOW.  For SNFs, this is about reducing or eliminating, avoidable hospital readmissions (within 30 days of SNF admission from a hospital).  The observation period has already concluded for payment adjustments (negative to positive), beginning in 2018.  The initial adjustment is 3% ranging to 8% in 2022.
  • IMPACT Act and QRP: This is all about the reporting of quality data and quality measures across all post-acute settings.  The implication for SNFs is the disclosure of these measures, tethered to a benchmark.  Performance below (the measurement period is past), the SNF is encouraged to improve to the benchmark.  Failure to improve nets a 2% reduction in Medicare payments.  High performers will receive an incentive payment.  Specifics are here:  http://wp.me/ptUlY-lx
  • Bundled Payments: Elective Hip and Knee replacement is up and running in 67 metropolitan regions.  In bundled payments, providers acute and post-acute are essentially paid based on an episode of care.  The episode is a benchmark for the region and provider costs based on billed charges, matched against the target.  Additionally, providers are tasked with quality measurements and satisfaction measurements.  The goal is to produce outcomes that are lower in cost than the benchmark  and at or above, desired quality levels.  Providers (hospitals initially) that can do so, will receive incentive payments.  The implication for SNFs is the need to control costs, provide high quality outcomes and potentially, participate in risk-sharing agreements with the hospital for a piece of the incentive “action”.  Cardiac and upper femur fracture bundled payments set to begin March 1 of this year are delayed to October 1.  More on this subject here: http://wp.me/ptUlY-k2  http://wp.me/ptUlY-kv
  • Star Ratings: Because of the issues above, mostly influenced by Bundled Payments and readmission penalties for hospitals, Star ratings (the CMS Five Star system) matter.  Providers that have lower Star ratings (3 or less) are watching referrals for quality paying patients (primarily Medicare) dwindle.  In some cases, in markets with ample 4 and 5 Star providers, referrals patters have shifted by as much as 30% (away from 3 Star and lower facilities).
  • Market and Referral Shifts: Without question, there is a distinct movement away from institutional post-acute care.  In some markets, an abundance of SNF beds has led to an overall reduction of ten plus points in average occupancy (supply exceeding demand).  Home health is the biggest benefactor as patients previously sent to SNFs for lengthy rehab stays have shifted to home health for the entire stay or for the back-half or better of the traditional stay.  This has hurt occupancy.  Couple this effect with the issues noted before and market and referral pressures are enormous for many SNFs.  A five to seven point reduction in the quality mix occupancy is enough to erode margins from negative to positive.  With increasing cost pressure due to the new Conditions of Participation, et.al., and limited revenue increases due to rate, the fortune for many SNFs is dim.
  • Possible New Payment System for Medicare: Within the past week, CMS floated a proposed rule for comment that would “gut” the current RUGs system, replacing it with a Resident Classification System.  The overall theme is to reduce the reward tied to maximizing therapy services and length of stay.  The new system would categorize residents based on overall needs, combine reimbursement for PT and OT and enhance payment for nursing related needs.  More to come on this topic.

With the above headwinds, none of which are all that new or “newsworthy”, the industry is quaking or trembling or at least fifty plus percent is.  Consider the following as reasons;

  • Medicaid remains the dominant payer for skilled nursing care.  With the likelihood of continued rate pressure state by state for providers (Medicaid structural funding issues), the prospect of enhanced payment now or in the near future is ZERO. Fifty plus percent of the SNFs in the industry have a census that is predominantly, Medicaid (50 plus percent).  The net Medicaid margin (negative) for most providers is 20%. For higher quality providers, the margin (negative) is 30%.
  • The make-whole relief has come from Medicare and to a lesser extent, private pay.  In effect, providers have subsidized their Medicaid losses via Medicare.  The loss offset plus margin has come from maximizing Medicare census and Medicare reimbursement, via higher therapy utilization and length of stay.  The net difference per patient day between Medicare and Medicaid (on average) is $275 per day (varies state to state).  For most providers with large Medicaid census, a Medicare day is worth 1.7 Medicaid days (one Medicare is 1.7 times more “revenue” valuable than a Medicaid day).  Illustrated a bit more: A 100 bed facility with 50 Medicaid needs 29.4 Medicare residents to offset the Medicaid loss.  Add a few private pay, and a margin is possible.
  • With VBP, QRP, bundled payments and census pressure, the ability to attract the Medicare volume to offset the Medicaid losses for a growing number of facilities has eroded.  Facilities at or below the 3 Star level in most major metropolitan markets are seeing referral “shrinkage” and thus, census reductions.  The effect is directly on the Medicare census.
  • The outlook as result of new Conditions of Participation is for steadily rising costs to comply, at least in the short to near term.  New regulations drive costs up.
  • A future that includes a payment system overhaul focused less on therapy and RUGs maximization, more on classifying residents’ needs globally, foretells great peril for the sector of the industry that has relied heavily on maximizing therapy volumes and related RUGs as margin subsidy.  These SNFs need a new revenue and business model and time for the same is not on their side.

Given the above and the factors operative, it is no wonder Kindred has decided to abandon the SNF market and potentially, explore a sale for their entire business.  The Kindred reality is/was for their SNF business, a portfolio heavily occupied by Medicaid, facilities with aged, inefficient and out-scale physical plants, so-so market locations, and virtually all subject to leases to Ventas and other REITs.  Combine these factors with an average Star rating at 3 or lower (not a lot of 4 and 5 star facilities) and the outlook is challenging.   There simply was and is, no business justification to invest millions upon millions of dollars (literally hundreds of millions likely) to upgrade physical plants (plants that were too old and improperly scaled) and to embark on a census development and Star improvement strategy, none of which will/would bear fruit for at least 5 years if not more. And of course, the fruit that is produced is insufficient in net margin to justify the original expenditure and meet ROI (Return on Investment) requirements.

The Kindred news that it may seek a sale of the entire business is a strategic, preemptive hedge to what has occurred (is occurring) to Brookdale. The parts of Kindred in certain cases may be worth more than the whole.  Overall, the revenue pressure (down) on the post-acute industry is heavy with the heaviest pressure set to bear on institutional providers; particularly those with aged and improperly positioned/scoped assets.  Revitalizing these assets is expensive, in some cases more so than rebuilding the asset properly, in its entirety.  In short, Kindred is asset wealthy but the cash flow future from the heavy institutional element is marginally poor.

Transitioning to REITs that hold large SNF portfolios, the same or an analogous picture is operative.  The bulk of REIT holdings are three Star and lower.  Quality mix has eroded for these facilities along with census.  As cash flow pressure has increased, the  need has arisen to restructure lease payments (lower).  Lower lease payments reduce REIT earnings.  Without a large volume of facilities that are four and five Star, there simply is no place to shift rate and thus, earnings pressure.  Four and five Star facilities can and generally do, have enough cash flow to pay leases with coverage ratios at 1.2 and better.  Below the three Star level, the pressure today is for leases to move to 1.1 or 1 – not a good future for a REIT’s earnings.

A concomitant problem for REITs is the value decline of the SNF assets they hold.  While industry Cap rates have been decent, the deal volume is very small and the deals done, cash flow focused – typified by four and five Star rated providers or newer assets.  REIT assets tend to be older buildings, larger buildings and parts of chain or system organizations such as LifeCare and Manor Care.  Simply stated: Without a quality mix, strong cash flow, good market location and solid to better assets (not too large, primarily private room, modern, etc.), the underlying brick and mortar value is minimal.  There are not buyers today for these types of assets and the operators willing to assume these assets with leases are disappearing as well.

Given all of these issues, challenges, etc., one could surmise an outlook for the SNF industry that is rather bearish.  My view is a bit bifurcated.  For a large portion of the industry, I am bearish;

  • Older physical plant that is larger, not fundamentally all private rooms, inefficient to staff, not having modern dining and therapy space, etc.
  • Rated at three Stars or less
  • Medicaid census at 40 percent or higher of total bed capacity
  • Debt or lease payments greater than 20% of net revenue
  • In rural locations, unaffiliated with a larger parent or provider organization (staffing is difficult at best)

For providers that don’t fit this profile, there is a decent future if they stay ahead of the trends.  Consider the following;

  • Quality referrals are migrating aggressively to four and five Star providers
  • Payment incentives for strong quality outcomes are forthcoming (next year to three)
  • In good market locations, these providers will be able to negotiate terms in narrow networks and with Medicare Advantage plans as the other providers fall-off.
  • Properly capitalized with a good capital structure and cash flow sufficient to keep physical plant from aging (depreciating) via proper maintenance and investment

Granted, the number of providers that meet this profile is not large in number and almost entirely today, non-profit, health system affiliated or regional, privately held.  The real challenge is to be nimble and constantly vigilant on quality.  The movement as I have written and publicly stated in speeches and lectures, is to pay only for high quality and efficiently determined outcomes.  Providers that can deliver this level of care will succeed and win in the new “environment”.  Those that aren’t at this level yet have likely, run out of time.  Three Star or lower ratings take a long time today to convert to four and five Stars.  By the time the conversion has occurred, the referral patterns in the market will have permanently changed.

May 4, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | 1 Comment

Health Systems, Hospitals and Post-Acute Providers: Making Integration Work

Early into the Trump presidency and health care/health policy is front and center.  The first “Obamacare repeal and replace” attempt crashed and burned.  The upcoming roll-out of the next round of bundled payments (cardiac and femur fracture) is delayed to October from the end-of-March target date.  Logically, one can question is a landscape shift forming? Doubtful.  Too many current realities such as the need to slow spending growth plus find new and innovative population health and payment models are still looming. These policy realities beget other realities. One such reality is that hospitals and health systems must find ways to partner with and integrate with, the post-acute provider industry.

In late 2016, Premier, Inc. (the national health care improvement organization) released the results of a study indicating that 85% of health system leaders were interested in creating expanded affiliations with post-acute providers.  Interestingly, 90% of the same group said they believed challenges to do so would exist (Premier conducted the survey in summer of 2016 via 52 C-suite, health system executives).  Most of the challenges?  The gaps that exist “known and unknown” between both provider segments (acute and post-acute) and the lack of efficient communication interfaces (software) between the segments.

On the surface, bundled payments notwithstanding, the push for enhanced integration is driven by a number of subtle but tactile market and economic shifts.

  1. Inpatient hospital lengths of stay are dropping, driven by an increasing number of patients covered by managed care.  Today, the largest payer source contributor of inpatient days, Medicare, is 30.6% “managed”…and growing.  Medicaid is 62.7% and commercial, nearly 100% (99%). Source: http://www.mcol.com/managed_care_penetration
  2. Payment at the hospital end is increasingly tied to discharge experience – what happens after the inpatient stay.  The onus today is on the hospital (and growing) for increasing numbers of patient types (DRG correlated) to discharge the patient properly such that the same does not beget a readmission to the hospital.  Too many readmissions equal payment reductions.
  3. Population health, focused-care models such as ACOs are evolving.  Their evolution is all about finding the lowest cost, highest quality centers of care.  Other BPCI (bundled payment) initiative projects such as Model 3, focus directly on the post-acute segment of care.  Unlike CJR (and the recently delayed cardiac bundles), the BPCI demonstration that began in 2013 covers 48 episodes of care (DRG based) and has participating providers (voluntarily) operating programs in all four model phases, nationwide.
  4. Patient preference continues to demand more care opportunities at-home.  Never mind the increased risk of complication with longer inpatient hospital stays (the risk of infection, pressure injuries, weight loss, delirium, etc. increases as stays increase), it is patient preference to discharge quickly and preferably, to home with services (aka home care).

Regardless the fate of Obamacare now or in the near future, these trends are unlikely to change as they have been moving separate from Obamacare.  Arguably, the ACA/Obamacare accelerated some of them.  Nonetheless, the baked-in market forces that have emanated from ACOs and care episode payments illustrate that even in infancy, these different models produce (generally) more efficient care, lower costs and improved patient satisfaction and outcomes.

As with any integration approach such as a merger for example, cultural differences are key.  The culture of post-acute care is markedly different from that of acute/hospital care.  For hospitals to appreciate this difference, look no farther than the two key determinants of post-acute culture: regulation and payment.  The depth and breadth plus the scope of survey and enforcement activity is substantially greater on the post-acute side than the acute side.  As an example, observe the SNF industry and how enforcement occurs.  Hospitals are surveyed for re-accreditation once every three years.  The typical SNF is visited no less than four times annually: annual certification and three complaint surveys.

In terms of payment, the scope is drastically different.  While hospitals struggle to manage far more payers than a post-acute provider, the amount that is paid to a hospital is substantially larger than that paid to a post-acute provider.  At one point years back, the differences were substantiated largely by acuity differences across patients.  While a gap still exists, it has narrowed substantially with the post-acute provider world seeing an increase in acuity yet lacking a concomitant payment that matches this increase.

Given this cultural framework, post-acute providers can struggle with translating hospital expectations and of course, vice-versa.  Point-of-fact, there is no real regulatory framework in an SNF under federal law for “post-acute” patients.  The rules are identical for a patient admitted for a short-stay or for the rest of his/her life.  Despite the fact that the bulk of SNF admissions today are of the post-acute variety, the regulations create conformity for residency, presumptively for the long-term.  Taking the following into consideration, a challenge such as minimizing a post-acute SNF stay to eight days for a knee replacement (given by a hospital to an SNF) is logical but potentially fraught with the peril presented by the federal SNF Conditions of Participation.  The SNF cannot dictate discharge.  A patient/resident that wishes to remain has rights under the law and a series of appeal opportunities, etc. that can slow the process to a crawl.  At minimum, a dozen or more such landmines exist in analogous scenarios.

Making integration work between post-acute and acute providers is a process of identifying the “gaps” between the two worlds and then developing systems and education that bridge such gaps. Below is my list (experiential) of the gaps and some brief notes/comments on what to do bridge the same.  NOTE: This list is generally applicable regardless of provider type (e.g., SNF, HHA, etc.).

  • Information Tech/Compatibility: True interoperability does not yet exist.  Sharing information can be daunting, especially at the level required between the provider segments for good care coordination.  The simple facts are that the two worlds are quite different in terms of paper work, billing requirements, documentation, etc.  Focus on the stuff that truly matters such as assessments, diagnoses, physician notes, plans of care, treatment records, medications, diagnostics, patient advance directives and demographics.  Most critical is to tie information for treating physicians so that duplication is avoided, if possible.
  • Regulatory Frameworks: This is most critical, hospital/physician side to the post-acute side, less so the other way.  Earlier I mentioned just one element regarding an SNF and discharge.  There are literally, dozens more.  I often hear hospitals frustrated by HHAs and SNFs regarding the “rules” for accepting patients and what can/cannot be done in terms of physician orders, how fast, etc. For example, it might be OK in the hospital to provide “Seroquel for sleep or inpatient delirium” but it is not OK in the SNF.  HHAs need physician face-to-face encounters just to begin to get care moving, including orders for DME, etc.  There is no short-cut.  Creating a pathway for the discharging hospital and the physician components to and through the post-acute realm is critical to keep stays short and outcomes high… as well as minimize delays in care and readmissions.
  • Resource Differences: Understanding the resource capacities of post-acute, including payment, is necessary for smooth integration.  What this means is that the acute and physician world needs to recognize that stay minimization is important but so is overall care minimization or better, simplification.  Unnecessary care via duplicative or unnecessary medications, tests, etc. can easily eat away at the meager margins that are operative for SNFs and HHAs.  For example, I have seen all too many times where a patient has an infection and is discharged to an SNF on a Vancomycin IV with orders for continued treatment for four more days.  Those four days are likely negative margin for the SNF.  A better alternative?  If possible, a less expensive antibiotic or send the remaining Vancomycin doses to the SNF.  Too many tests, too many medications, too much redundancy erodes post-acute margin quickly.  Finding common ground between providers with shared resource opportunities is important for both segments to achieve efficiency and still provide optimal care.
  • Language Differences: In this case, I don’t mean dialect.  Industry jargon and references are different.  I often recommend cheat-sheets between providers just to make sure that everyone can have a “hospital to SNF to HHA” dictionary.  Trust me, there is enough difference to make a simple working dictionary worth the effort.
  • Education/Knowledge: The gap between staff working in different environments can be wide, particularly as the same relates to how and why things are done the way they are.  For example, therapy.  Physical therapy in a hospital for the acute stay is markedly different than the physical therapy in a home health setting or a SNF setting.  Care planning is different, treatments similar but session length and documentation requirements are vastly different.  The clinical elements are surprisingly similar but the implementation elements, markedly different.  The notion that one staff level is clinically superior to another is long dispelled.  SNF nurses can face as many clinical challenges and perhaps more due to no/minimal immediate physician coverage, as a hospital nurse.  True, there are specialty differences (CCU, Neuro ICU, Trauma, etc.) but at the level where patients flow through acute to post-acute, the clinical elements are very similar.  The aspect of care differences and the how and why certain things are done in certain settings is where interpretation and education is required.
  • System and Care Delivery: While the diagnosis may follow, assuring proper integration among the various levels or elements of care requires systematic care delivery. The best language: clinical pathways and algorithms.  Developing these across settings for an episode of care creates a recipe or roadmap that minimizes redundancy, misinterpretation, and lack of preparation (all of which create bad outcomes).  With these in-place, common acute admissions that beget post-acute discharges, places every care aspect within the same “playbook”.

 

March 28, 2017 Posted by | Home Health, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , | 2 Comments

Webinar – Post-Election Healthcare Policy: What to Expect

Join me as I host a one-hour webinar and conference call regarding post-election healthcare policy.  The program/call is set for Wednesday, December 14 at 1:00 PM EST/noon CST.

With uncertainty looming, providers are wondering what will change as the Inauguration approaches and a new Congress settles in. We will review the ACA, Medicaid and Medicare, and related policy issues including;

  • Value Based Purchasing
  • CMS Center for Innovation/Alternative Delivery Models/Bundled Payments
  • Additional Quality Measures and Quality Reporting
  • Inter-Program and Payment Reform – Rate Equalization for Post-Acute Providers
  • IMPACT Act
  • ACO Expansion

The program is sponsored by HCPro and the registration link is below;

 http://www.longtermcarebillers.com/content/join-us-quarterly-biller%E2%80%99s-association-webcast

 

December 6, 2016 Posted by | Policy and Politics - Federal | , , , , , , , , , , , , , , | Leave a comment

The Election is Over….Now What?

We knew that sooner or later, the first Tuesday in November would arrive and with that, a new President and changes (many or few) to Congress. The outcome certain, we move to uncertainty again concerning “what next”?…or as applicable here, what next from a health policy perspective.

With Donald Trump the incoming President-Elect, only so much from a policy perspective is known.  Hillary Clinton’s path was easier to divine from a “what next” perspective as fundamentally, status quo was the overall direction. Trump’s likely direction and thus, changes to current policy, etc. are hazy at best.  Thematically, there are points offered throughout the campaign that give some guidance.  Unfortunately, much that drives current reality for providers is more regulatory begat by legislative policy than policy de novo.

Without divining too much from rhetoric, here’s what I think, from a health policy perspective, is what to expect from a Trump Administration.

  1. ObamaCare: Trump ran on a theme of “repeal and replace” ObamaCare aka the Affordable Care Act. This concept however, needs trimming.  Repealing in total, existing federal law the magnitude of the ACA is difficult if not nearly impossible, especially since implementation of various provisions is well down the road.  The ACA and its step-child regulations are tens of thousands of pages.  Additionally, even with a Republican White House and Republican-majority Congress, the Congressional numbers (seats held) are not enough to avoid Democratic Senate maneuvers including filibuster(s). This means that the real targets for “repeal and replace” are the insurance aspects namely the individual mandate, Medicaid expansion, certain insurance mandates, the insurance exchanges, a likely the current subsidy structure(s).  The other elements in the law, found in Title III – Improving the Quality and Efficiency of Health Care, will remain (my prediction) – too difficult to unwind and not really germane to the “campaign” promise.  This Section (though not exclusively) contains a slew of provisions to “modernize” Medicare (e.g., value-based purchasing, physician quality reporting, hospice, rehab hospital and LTACH quality reporting, various payment adjustments, etc.).  Similarly, I see little change made, if any to, large sections of Title II involving Medicaid and Title IV involving Chronic Disease.  Bottom line: The ACA is enormous today, nearly fully intertwined in the U.S. health care landscape and as such, too complex to “wholesale” eliminate and replace. For readers interested in exploring these sections (and others) of the ACA, a link to the ObamaCare website is here http://obamacarefacts.com/summary-of-provisions-patient-protection-and-affordable-care-act/
  2. Medicaid: The implications for Medicaid are a bit fuzzier as Trump’s goals or pledges span two distinct elements of the program.  First, Trump’s plan to re-shape ObamaCare (repeal, etc.) would eliminate Medicaid expansion.  As mentioned in number 1 prior, this is a small part of the ACA but a lipid test for Republican governors, especially in states that did not embrace expansion (e.g, Wisconsin, Kansas, etc.).  Second, Trump has said that he embraces Medicaid block-grant funding and greater state autonomy for Medicaid programmatic changes (less reliance on the need for states to gain waivers for coverage design, program expansion, etc.).  It is this element that is vague.  A series of questions arise pertaining to “policy” at the federal level versus funding as block grants are the latter.  The dominant concern is that in all scenarios, the amount of money “granted” to the states will be less than current allocations and won’t come with any matching incentives.  With elimination of the expansion elements, how a transition plan of coverage and care will occur is a mystery – federal assistance? state funding mostly?  What I do predict is that Medicaid will only suffer the setback of a restructure and replacement of the Medicaid expansion elements under the ACA.  I don’t see block grants happening any time soon as even Republican governors are opposed without a plan for wholesale Medicaid programmatic reform.  Regardless of the approach, some initial Medicaid changes are in the offing, separate from the Block Grant issue.  The Medicaid Expansion issue is no doubt, a target in the “repeal and replace Obama Care”.  The trick however is to account for the large number of individuals that gained coverage via expansion (via eligibility increases due to increased poverty limits) – approximately 8 million impacted.  This is less about “repeal” and more about “replace” to offset coverage lapse(s) for this group.
  3. Related Health Policy/ACA Issues: As I mentioned earlier, the ACA/ObamaCare is an enormous law with tentacles now woven throughout the health care industry.  The Repeal and Replace issues aren’t as “clean” as one would think.  The focus is the insurance mandate, the subsidies, the mandated coverage issues and to a lesser extent, Medicaid.  That leaves fully 80% of the ACA intact including a series of policy changes and initiatives that providers wrestle with daily. These issues are unlikely to change in any substantive form.  Republicans support alternative delivery projects, value based purchasing, etc. as much if not more than Democrats.  Additionally, to repeal is to open a Pandora’s Box of agency regulations that tie to reimbursement, tie to other regulations, etc.  For SNFs alone, there exists all sorts of overlap between Value Based Purchasing, Bundled Payments, new Quality Measures and quality reporting (see my post/presentation on this site regarding Post-Acute Regulatory Changes).  The list below is not exhaustive but representative.
    • Value Based Purchasing
    • CMS Center for Innovation/Alternative Delivery Models/Bundled Payments
    • Additional Quality Measures and Quality Reporting
    • Inter-Program and Payment Reform – Rate Equalization for Post-Acute Providers
    • IMPACT Act
    • ACO Expansion

As providers watch the inauguration approach and a new Congress settle in, the wonder is around change. Specifically, what will change.  My answer – bet on nothing substantive in the short-run.  While Mr. Trump ran partially on a platform that included regulatory reduction/simplification, the lack of overall specifics regarding “which or what” regulations on the health care front are targets leaves us guessing.  My guess is none, anytime soon.

The Trump focus will be on campaign specific agenda first: ObamaCare, Immigration, Taxation, Foreign Trade, Energy, etc. – not health policy per se.  There is some flow-through gains providers can anticipate down-the-road that can be gleaned from the Trump campaign but these are a year or more off.  If Trump does deal with some simplification on drug and research regulation (faster, cheaper, quicker approvals), funding for disease management and tele-medicine and a fast-track of some Republican policy “likes” such as Medicare simplification, Medicaid reform at the program level, and corporate tax reduction (will help for-profit providers), then gains will occur or opportunities for gains will occur.

From a strategic and preparatory perspective, stay the course.  Providers should be working on improved quality outcomes, reducing avoidable care transitions/readmissions, looking at narrow networks and network contracting/development opportunities and finding ways to reduce cost and improve care outcomes.  Regardless of what a Trump Administration does first, the aforementioned work is necessary as payment for value, bundles/episodes of care, and focus on quality measures and outcomes is here to stay and to stay for the foreseeable future.

November 18, 2016 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

Post-Acute Providers and Narrow Networks: Join, Form or Wait

As alternative payment models expand and the options clarify, the post-acute segment of the health care spectrum faces a series of strategic questions, primarily;

  1. Join a network that exists or is forming be it part of an ACO, a SNP, a preferred provider organization in a Managed Medicaid state, or part of a bundled payment initiative
  2. Form one de novo – a SNP, a PACE, etc.
  3. Wait and see what evolves as certainly, much will change over the next two to four years.

One consideration that cannot be overlooked is that CMS plans on aggressively pursuing additional “value-based payments” at the expense of fee-for-service arrangements presently in-place.  The process, if consistent with what has occurred in terms of roll-out/roll-forward, suggests a pace that will include new initiatives (e.g., bundled payments) every 12 months. Simultaneous or parallel to this movement, states continue to push forward on various hybrid Medicaid options including managed Medicaid plans, hybrid plans for dual eligible individuals, and the encouragement of more SNP and PACE options with some states offering incentives for formation (PACE Innovation Act allows for different program options with different benefit structures across more population categories.  Also provides program opportunities for for-profit organizations).

The question oft asked these days is given the above, where to next for an SNF, a HHA, or even an ALF or Hospice? The answer starts with the market area and the dynamics within the market.  The trends I see are truly unique and different region to region, market to market, state to state. For example, in certain states and regions, ACOs exist, are up and running, and have experience under their “belt”.  In other states, ACOs are just forming or in some cases, re-forming post a distasteful experience and opportunities are fresh.  In still other states, ACOs don’t exist and perhaps trial balloons have floated but nothing has persisted to conclusion.

The market factors that drive (majority of) network formation and thus, the maturity of the formation, the opportunities and the palate for additional or new ventures are;

  • How much “managed” Medicare and Medicaid exists in the state, region, etc. and for how long.  In markets with a large penetration of Medicare Choice plans, narrow networks and the experience and acceptance between providers is greater.
  • Are ACOs up and running and/or forming.  The more they are or are developing, the greater the interest in and opportunity for, network enhancement and development
  • The market experience with early-phase, bundled payments via BPCI – the precursor to the current bundled payment initiatives.  Similarly, whether the region is participating in the CCJR initiative or will in the new cardiac bundled payments.

No matter the dynamics of the market however, certainty does exist that post-acute providers must move to adapt to a value- based payment paradigm.  How much risk a provider can and will accept depends on the provider, its existing care management acumen, its infrastructure maturity and its financial/capital position.  Similarly, the evolution period that predominates the post-acute world now requires balance.  This period is still fee-for-service heavy yet, transitioning (depending on regions, markets) to value-based payments.  Providers must manage and excel at both though strategies to succeed in  both are not mutually exclusive.  Additionally, while payments are evolving, the compliance requirements are not.  Oddly enough, the forthcoming revised Federal Conditions of Participation for SNFs will not in any way, provide accommodation for providers that work heavily in a transitional, post-acute world.  The regulations are long-term care driven and heavily so in some cases wholly anathema to the transitional care world that is evolving.

Assumptively, this episode of care, value-based payment world is not going away.  What this means is that survival in such a world for any post-acute provider is to avoid reactive strategy (defensive), instead applying resources and energy in the direction of the change.  What I advise, before I answer the questions posed in the title, is as follows;

  • Know your market and critically evaluate the landscape.  What is going on in terms of Medicare Advantage plans, ACOs, etc.?  If not done, have an in-depth conversation with hospital and physician referral partners regarding their approaches, strategies, etc. to  bundled payments.  Don’t  be surprised however, if a level of vapor-lock exists.   Be willing to forebear the task and direct some additional dialogue.
  • Assess your organization critically.  Where are your quality ratings and measures (stars, etc.)?  How does your organization manage its lengths of stay, key quality measures (falls, hospitalizations, wounds, patient satisfaction, etc.)?  Where is your HIS/MIS at?  Can you communicate with other providers, provide physicians access, etc.?
  • Can your organization make investments financially in infrastructure and staff realignment while still caring for a payer mix that is predominantly fee-for-service?  Can you survive lower margins perhaps even losses while you transition?  You may have extra staff temporarily, different staff, and more capital investment than typical.
  • Can you laterally partner or downstream?  For example, an SNF needs to find a HHA partner.  What synergies in the market exist?  Can (or will or already is) the SNF be in the HHA  business?  How about outpatient?  How about physicians?  Partner?  Employ? Joint venture (careful here)?

Concluding: To the questions(s) posed in the title.  Join?  Yes, particularly if the provider is single site or limited sites in a region.  Again, I am assuming the provider is prepared to join (I’ll summarize at the end).  Source complimentary networks and get in and watch for opportunities in the market and within the network to develop additional product/service lines.

Form?  Not unless the provider has mass, expertise and enough geographic span and parallel partner alignment to manage a population of at-risk individuals for capitated payments.  This is a step that requires significant infrastructure and capital.  A provider must have enough outlets and partners to manage population risk across a group exceeding normally, 10,000 lives (ideally larger).  The common network models applicable for post-acute providers looking to form their own network are SNPs and PACE programs.

Wait?  I can’t recommend waiting as doing so will leave any provider at peril of being left-out as networks continue to evolve.  This said, a play cautiously strategy is fine provided that the provider or group is diligent and active in gauging networks and negotiating.  A wholesale “wait and see what happens” is an ill-advised strategy.

Final Note: By prepared to join a network I mean minimally, having the following pieces with experience and data as applicable.

  • Ratings at 3 Stars or better – ideally 4 or higher particularly in markets where multiple 4 star or better providers exist.
  • A great QAPI program that monitors outcomes and tracks and trends quality data and quality measures plus patient satisfaction.  Minimally, the provider should have data and analysis on infections, falls, wounds, hospitalizations, response times, other care transitions, length of stay, etc.
  • A procedure and personnel to care manage referrals through a full episode of care.
  • A process of sharing quality data and communication on patient care and service issues across provider segments.
  • HIS/MIS at a level that allows certain functional connectivity between providers such as lab/diagnostics, hospital, physicians, pharmacy, etc. such that patient information can be communicated and acted upon.
  • Parallel service partners (either owned or contracted with) across, up and down stream – physicians, hospitals, pharmacy, HHA, hospice, outpatient, etc.
  • Care algorithms to support best practices for outcomes on key patient profiles (minimally, bundled payments) plus supportive protocols for key co-morbidities such as COPD, CHF, diabetes, peripheral vascular disease, depression, and other source acquired pressure injuries and infections.  The latter are necessary to minimize re-hospitalization risk.
  • Care staff trained and using INTERACT tools and versed in physician communication protocols, ideally from a source such as AMDA.

September 14, 2016 Posted by | Home Health, Skilled Nursing | , , , , , , , , , , , , , | 1 Comment

The Supreme Court, False Claims Act, and Implications for Providers

Nearing the end of the Supreme Court session, the Court issued an important clarification ruling concerning the False Claims Act in cases of alleged fraud.  In the Universal Health Services case, the Court addressed the issue of whether a claim could be determined as fraudulent if the underlying cause for fraud was a lack of professional certification or licensing of a provider that rendered care related to the subsequent bill for services.  In the Universal case, the provider submitted claims to Medicaid and received payment for services.  The services as coded and billed implied that the care was provided by a licensed and/or qualified professional when in fact, the care was provided by persons not properly qualified.  In this case, the patient ultimately suffered harm and death, due to the negligent care.

The False Claims Act statute imposes liability on anyone who “(a) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; or (b) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” It defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” And it defines “knowingly” as “actual knowledge; … deliberate ignorance; … or reckless disregard of the truth or falsity of the information; and … no proof of specific intent to defraud is required.” The last element is key – no proof of intent to defraud is required.

Though providers sought a different outcome, the initial review suggests the decision is not all that bold or inconsistent with other analogous applications.  The provider community hope was that the Court would draw a line in terms of the expanse or breadth of False Claims Act “potential” liabilities.  The line sought was on the technical issue of “implied certification”; the notion that a claim for services ‘customarily’ provided by a professional of certain qualifications under a certain level of supervision doesn’t constitute fraud when the services are provided by someone of lesser professional stature or without customary supervision, assuming the care was in all other ways, properly provided.  The decision reinforces a narrow but common interpretation of the False Claims Act: An action that would constitute a violation of a federal condition of participation within a program creating a condition where the service provided is not compliant creates a violation if the service was billed to Medicare or Medicaid. Providers are expected to know at all times, the level of professional qualifications and supervision required under the applicable Conditions of Participation.

The implications for providers as a result of this decision are many.  The Court concretized the breadth of application of the False Claims Act maintaining an expansive view that any service billed to Medicare and/or Medicaid must be professionally relevant, consistent with common and known professional standards, within the purview of the licensed provider, and properly structured and supervised as required by the applicable Conditions of Participation.  Below are a few select operational reminders and strategies for providers in light of the Court’s decision and as proven best-practices to mitigate False Claims Act pitfalls.

  • One of the largest risk areas involves sub-contractors providing services under the umbrella and auspices of a provider whereby, the provider is submitting Medicaid or Medicare claims.  In these instances the provider that is using contractors must vet each contractor via proper credentialing and then, provide appropriate and adequate supervision of the services.  For example, in SNFs that use therapy contractors the SNF must assure that each staff member is properly licensed (as applicable), trained to provide the care required, and the services SUPERVISED by the SNF.  Supervision means actually reviewed for professional standards, provided as required by law (conditions of participation), properly documented, and properly billed.  The SNF cannot leave the supervision aspect solely to the therapy contractor.
  • Providers must routinely audit the services provided, independently and in a structured program.  Audits include an actual review of the documentation for care provided against the claim submitted, observations of care provided, and interviews/surveys of patients and/or significant others with respect to care and treatment and satisfaction.
  • Establish a communication vehicle or vehicles that elicits reactions to suspicious activity or inadequate care.  I recommend a series of feedback tools such as surveys, focus groups, hotlines and random calls to patients and staff.  The intent is to provide multiple opportunities for individuals, patients, families and staff to provide information regarding potential break-downs in care or regarding outright instances of fraud.
  • Conduct staff training on orientation and periodically, particularly at the professional level and supervisory level.  The training should cover organizational policy, the legal and regulatory framework that the organization operates within, and case examples to illustrate violations plus remedy steps.

July 24, 2016 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , | Leave a comment

CMS Releases Proposed New SNF Rule

Concurrent with the White House Conference on Aging, CMS released its “proposed” rules of reform for the SNF Conditions of Participation.  The proposed rule is set for publication tomorrow in the Federal Register but readers with interest can access the document/PDF on this site on the “Reports and Other Documents” page.  The Federal Conditions of Participation for SNFs have not undergone substantial revision or update since 1991 (OBRA implementation and PPS).  A portion of the impetus for the update is the continued roll-out of the various pieces of the ACA (Obamacare).  Within the ACA are several directions to the Secretary of Health and Human Services to make modernization recommendations and regulatory updates for all provider segments within the Medicare/Medicaid domain.

In researching the content for this post and reviewing the released document (402 pages), it seemed the best use of space and the most expeditious for readers/followers that I summarize the “impactful” elements rather than regurgitate the content of the document.  In so doing, I need to preference my summary with a bit of a preamble.

The document is a release of “proposed” rules not concretized rules.  There is a lengthy comment period and the final rule will morph from this release.  While I won’t profess to have a crystal ball, I have certain insight and 30 plus years of experience so I think my summary will provide a solid look into what the salient changes are and what is likely to happen.  The latter is for another post and a planned webinar (watch for details).  The key to remember for anyone reading this post and any other information that is current and forthcoming regarding the proposed rule is that this is the “macro” level; the finite level is the implementation and the survey and enforcement data otherwise known as Interpretive Guidelines.  What you see now, read now, etc. is and will be a far cry from how the same (when final) is interpreted at the facility level and enforced.  I can’t emphasize this point enough as anyone who has a similar history to me knows, the stuff in the Federal Register as the actual law can be widely and sometimes, astoundingly interpreted and enforced at the ground level (again, fodder for another post).

To begin: What is proposed to change is an actual bifurcation of clarifications and new elements.  Oddly enough, there isn’t a tremendous amount of overhaul moreover, language changes and “modernizations”. In certain instances, the words are just references to current industry vernacular such as “care transitions” rather than transfer and discharge.  Resident Rights are also a section where nothing substantive changes other than references and language.  Ironically (and I could run a fun contest here), a number of proposed changes are nothing more than an incorporation of what I have seen evolve as survey tasks and enforcement tasks (current) that aren’t really tied (bright line) to current law.  (Feel free to comment to this post if you see some of these ironic elements in the proposed rule).  So, without further dribble, here is what my summary of the key proposed changes.

  • Transitions of Care: There are two elements of change – one in 483.15 (Transfer, Discharge) and the other in 483.30 (Physician Services). First, any transition from the SNF to any provider will require additional documentation to accompany the resident such as present illness, reason for transfer, medical history, etc. This isn’t major.  The major element is for any non-scheduled hospital transfer, the rule would require an in-person evaluation of the resident prior to the transfer by a physician, physician assistant, or advance practice nurse (qualified nurse specialist or NP).  This means the 2:00 AM transfer to the hospital for an urgent/emergent condition could not occur without one of the aforementioned individuals being “on-site” and certifying the need for the discharge.  I believe this element will either evaporate from the final rule or be substantially changed and better defined.  It is not only impractical but frankly, in rural areas, etc., completely improbable and virtually impossible (heavy emphasis on “virtual’ as that is the only way it could occur, via tele-medicine).
  • Care Planning: A new section is added titled “Comprehensive Person-Centered Care Planning” that will require an initial care plan in 48 hours, an expanded definition of Interdisciplinary Team to include a CNA, a food service/nutrition staff member and a social worker. The rule also proposes to implement the requirements of the IMPACT Act (Improving Medicare Post-Acute Care Transformation Act) as pertaining to discharge planning (med reconciliation to include pre-admission meds and current meds plus OTCs, discharge summary recommendations for follow-up care, resources and information for the resident regarding his/her discharge plan, etc.  I believe this element will remain in the final rule, substantially unchanged.
  • Nursing Services: The proposed rule would incorporate a competency requirement for determining sufficient number of staff based on a facility assessment which incorporates number of residents, acuity, diagnoses and careplans.  This one I see changing quite a bit as it is so vague and potentially fraught with huge implementation and oversight problems.  It also as written, is a bit confusing and disconcerting in terms of a survey element.
  • Behavioral Health: This is proposed as a new section.  It, similar to Nursing Services prior, would require a facility assessment to determine direct care staff needs regarding staff competency and skill sets to meet resident psychological and mental health needs.  Again, I see this changing dramatically as it is horribly vague and fraught with implementation challenges.
  • Pharmacy Services: The proposed rule includes a required 6 month pharmacist review of resident medication regimes and upon admission when the resident is new and post-hospitalization (return). and monthly when the resident is on an antibiotic, psychotropic drug or any other drug that a QAA (Quality Assurance) committee requests the pharmacist review.  Irregularities are to be noted and reported to the attending physician, the medical director and the director of nursing.  Attending physicians are then to document that the irregularity was reviewed and any action taken/not taken plus the reasoning for the action.  I see this fundamentally staying with some clarifications.
  • Dental Services: The “big” shift is the proposed requirement that facilities are prohibited from charging a Medicare resident for loss or damage of dentures, if the facility is responsible for the dentures.  I’m not sure where this will fall out but if it remains fundamentally intact, facilities will be paying for lots of dentures, regardless of how the loss or damage occurred.
  • Food Service: Following thematically with other elements in the proposal, the requirement is for a facility to assess the resident population by care needs, diagnoses, acuity and census and employ sufficient staff with sufficient competency to provide food and nutritional services.  A Director of Food Service in the proposal must meet certain education and training requirements such as Certified Dietary Manager, Certified Food Service Manager, have at least an Associate’s degree in food service management or similar from an accredited institution.  The proposal also requires facility menus to be reflect the cultural, religious and ethnic needs and preferences of residents, be periodically updated and not limit the resident’s right to make food choices.  In addition, facilities will have to allow residents to consume and store foods brought by visitors and families.  I see major changes forthcoming in this requirement, especially around the staff adequacy determination, menus and food brought into the facility by visitors and families.  The latter is a huge infection control risk.
  • QAPI: This requirement is added anew – not surprising.
  • Facility Assessment: This also is a new element requiring the facility to conduct and document a facility-wide assessment to insure the resources necessary to care for residents are available daily and in emergencies.  This assessment must be updated regularly.  The assessment must address the resident population by number, overall care delivered and the staff competency to provide the care and meet resident preferences plus incorporate a facility-based and community-based risk assessment.  I see this element changing dramatically as it is vague and potentially problematic to enforce and implement.
  • Binding Arbitration Agreements: The rule will require facilities that use such agreements to meet certain requirements. Chief among the provisions is that a resident and/or his/her legal representative cannot be required to sign the agreement upon admission.  Additionally, the agreement must indicate the resident’s right to communicate with federal, state and local officials (regulatory) including Ombudsmen. I do not see much change in this element.
  • Infection Control: In addition to having an Infection Control Program the facility would be required to have an Infection Control Officer and this individual’s primary responsibility must be infection control. I see the Infection Control Officer element subject to change.
  • Compliance and Ethics Program: This is a new element requiring the operating organization (not just the facility if part of a larger organization) to have at each facility a compliance and ethics program with written standards, policies and procedures such that the same are capable of reducing criminal, civil ad administrative violations.  I see this element staying but changing to be a bit more definitive and relevant.
  • Staff Training Requirements: This is also a new element requiring facilities to develop, implement and maintain for all staff, a training program that encompasses (minimally) the following (I don’t see much change in this requirement);
    • Communication
    • Resident Rights and Facility Responsibilities
    • Abuse, Neglect and Exploitation
    • QAPI
    • Compliance and Ethics
    • Ongoing education for CNAs in dementia education and abuse prevention (12 annual hours minimum)
    • Behavior Health Training

The estimate provided by CMS for implementation cost at the facility level is $46,491 in the first year, $40,685 in the following year totaling $729 million industry-wide in the first year.  I guarantee that these numbers are light by 50% or more and in stable to declining reimbursement periods (now and going forward), this will be the driving point the industry will use in lobbying Congress, among the other points noted herein.

 

July 15, 2015 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | Leave a comment