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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

SNFs: Five Compliance Issues to Pay Attention To

I don’t write a lot on compliance issues. Given the scope of my firm’s practice in this area, maybe I should.  My practice focus is more strategic, policy, research  and corporate development while compliance is the purview of another Sr. Partner and it is our largest practice area (by full disclosure, this practice area is headed by my wife).  In a recent meeting, we reviewed the list of common/current compliance issues, engagements, and information and speaking requests and determined that five compliance issues bear illustration via a post here.  These are not in order of importance but their appearance represents issues of current magnitude or issues where we see clients potentially putting themselves “behind the 8 ball” by not addressing the requirements properly.

  1. Emergency Disaster/Preparedness Plan: In December of last year (2013), CMS issued a proposed rule that will significantly update the requirements for providers to address all elements of Emergency Preparedness (storms, earthquakes, active shooters, infectious disease outbreaks, etc.).  While final Conditions of Participation are forthcoming as comment periods were extended, providers who have yet to start on a path toward compliance will find themselves startled by how lengthy and daunting the route toward compliance is. This process is a complete revamp of anything prior.  Attached via link is the CMS Preparedness checklist: https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/SurveyCertEmergPrep/Downloads/SandC_EPChecklist_Provider.pdf   Clearly, the larger the organization the greater the length of time and preparation required to complete the plan.  As of this writing, the significant majority of the providers we connect with regularly are not in compliance and worse, haven’t started a process toward compliance and/or, haven’t paid attention that this new requirement is forthcoming.  Note: This requirement applies to virtually all providers that participate in Medicare and Medicaid including hospitals, home health organizations, hospices, and yes, Assisted Living Facilities if the same receive resident care funding via Medicaid waiver programs (Home and Community Based Services).  Anyone wishing additional info. or templates on this requirement, contact me directly via a comment to this post with a valid e-mail address or via the contact info. on the Author page of this blog.
  2. CPR/Advanced Care Planning: In October of 2013, CMS issued new survey guidance to SNFs and State Survey Agencies requiring that all SNFs provide CPR to residents who wish resuscitation and that each SNF have a program and process in-place to assure adequate trained individuals, the communication and education of residents regarding the availability of CPR and the rights of residents to execute Advance Directives including no-code orders.  Effectively, CMS has said that a facility must provide residents access to CPR if desired, 24 hours per day, 365 days per year and no longer will “no code” policies suffice or “911 policies” be permitted.  This regulation went into effect 30 days after it was published though we are just beginning to see enhanced enforcement.  For SNFs there are many nuances to consider including the issues around resident transportation, activities outside of the facility, etc.  As the SNF, without a complete discharge or transfer to another provider for specific care (hospital, ER, etc.) is still responsible for the care of the resident, CPR trained individuals must be available (and the SNF must assure availability) when residents are transported to physician visits, on therapeutic (recreational) outings, etc.  Again, as with the Emergency Preparedness requirements, we continue to see a large number of SNFs unaware of this requirement and not in compliance by the documentation and trained staff requirements across the resident care continuum.  The original CMS memo on this issue is here : http://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/SurveyCertificationGenInfo/Downloads/Survey-and-Cert-Letter-14-01.pdf
  3. QAPI: I have written about this topic in an earlier post ( http://wp.me/ptUlY-fa ) and posted a PowerPoint from a presentation I did last fall on the Reports and Other Documents page of this site.  While CMS has not yet set a hard date for SNFs to be compliant with a QAPI program, one is forthcoming.  Like the Emergency Preparedness requirement, QAPI is not a simple “paperwork” fix.  Meeting the requirement takes time and requires commitment fromf the entire organization plus an enhanced engagement from residents (via input), families/loved ones, and community.  Additionally, with pay-for-performance forthcoming (competitive bidding/Quality Measures), facilities that are not actively engaged in a QAPI effort are today, behind and falling further behind.  Illustratively, we have clients that have had their proverbial compliance Bacon “saved” by having a fully functional QAPI program in-place (QAPI minutes, data, etc. were used to show surveyors that issues were addressed, monitored and continued to be monitored – particularly QIS friendly).  The take-away is that SNFs need to get on their QAPI journey now and build, build, build!  Again, anyone needing additional resources that aren’t on this site or direction, feel free to contact me via comment or e-mail (on Author’s page).
  4. Care Transitions: SNFs that aren’t actively monitoring any and all transitions of their residents to other providers, especially hospitals, are placing themselves at- risk; competitively and from a reimbursement perspective.  While the latter has yet to arrive, it is coming as CMS will, under ACA mandated pay-for-performance rules, begin to reduce Medicare payments for SNFs that re-hospitalize and hospitalize unnecessarily, Medicare residents.  Additionally, as bundled payment models expand and ACOs increase, SNFs that cannot control their transitions are at competitive risk; the risk that they will be precluded from various alliances, ACO models, etc. In May of 2003, CMS issued enhanced survey guidance for hospitals via updated interpretive guidelines on discharge planning, focused on re-admission reductions.  In order for SNFs to continue to garner referrals and position themselves for competitive success in the near future (and survival), a focus on care transitions is paramount.  Attached is the link to Interact – a good resource for transition monitoring and reductions tools: http://interact2.net/
  5. Medicare Therapy Billing: This issue is on the OIG’s radar, in their 2014 work plan and forward on the audit agenda for CMS.  SNFs that ignore this issue are asking for potential significant problems including False Claim Act exposure (it is illegal to bill Medicare for services not medically necessary).  SNFs need to have an audit step engaged, periodically reviewing claims against the MDS, the careplan, nursing documentation, etc.  If an SNF is using a contract therapy provider, this audit step is even more critical.  Remember, SNFs cannot cede liability for fraudulent acts committed as a Part A provider to a contractor.  Additionally, most therapy contracts we see (virtually all) limit the therapy company’s liability (indemnification) for rejected claims to the cost of the therapy billed to the SNF. In other words, while the entirety of the stay or large portions thereof are deemed non-payable to the SNF by CMS (or a CMS auditor), the SNF will recover from the therapy provider, the cost of therapy billed to the SNF for the stay – the rest of the RUG revenue is gone!  In short, SNFs cannot nor should ever allow, their therapy contractors immunity from routine outside audits of their care provision, their MDS coding, their documentation, etc.  This is a big and growing compliance risk area for SNFs and knowledge and simple systemic audit tools are a big step toward keeping this risk low.  For additional insight on this area and resources, contact me directly via e-mail or post a comment on this article.

June 19, 2014 Posted by | Skilled Nursing | , , , , , , , , , , | 2 Comments

Medicaid Case-Mix States: A Reader Question

Recently, a reader asked me a question regarding which states still use RUGs III for their Medicaid case-mix payments. At the time, I honestly didn’t know the answer completely. Based on a little research, I’ve outlined the RUGs status as I currently know it, across the states that utilize Medicaid case-mix. Note: Not all states use a case-mix reimbursement methodology for their Medicaid SNF payments (eighteen don’t). Any readers that know more specifics about any of the states and their status as listed below, are free to comment with additional information.

RUGs IV

  1. Washington
  2. Minnesota

Transitioning to RUGs IV (either upcoming, very recent or at this point in time)

  1. Vermont
  2. Wisconsin
  3. Illinois
  4. Maryland (last cost based state in the country, transition in July of 2014)
  5. Indiana (2015)

RUGs III (some may be in the process of developing a transition)

  1. Montana
  2. Idaho
  3. Nevada
  4. Utah
  5. Colorado
  6. North Dakota
  7. South Dakota
  8. Nebraska
  9. Kansas
  10. Texas
  11. Iowa
  12. Louisiana
  13. Mississippi
  14. Kentucky
  15. Ohio
  16. Maine
  17. New Hampshire
  18. New York
  19. Pennsylvania
  20. West Virginia
  21. Virginia
  22. North Carolina
  23. Georgia

Again, if anyone knows more specifics about any of the above mentioned states, please feel free to comment to this post.

April 7, 2014 Posted by | Skilled Nursing | , , , , , , , | Leave a comment

Amedisys Today: A Cautionary Tale

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

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

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

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

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

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

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

Home Health Focus: Gentiva/Harden and More

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

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

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

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

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

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

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

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

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

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

The ACA/Obamacare: Predictability and Practicality

With all the news and among the conjecture, punditry and analysis that fits any twenty-four hour news cycle, I wondered with a few colleagues the other day, how predictable the events current with Obamacare were.  Americans being who we are, our collective political memories and policy memories are short.  I too, often find even the recent past a bit muddled in memory though in my case, I attribute the “muddling” to age and a ton of issues always at-play. Nonetheless, my files are always organized and my memory good enough to recall a series of prior articles and posts that I wrote as Obamacare emerged.  For current and past readers, I’ve referenced each below.

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When I go back through this list and my notes, etc., my first reaction is kind of an “I told you so”, smug feeling.  The same is quickly buffered by a feeling of how so many folks couldn’t see this coming or refused to view the forest for the trees.  The practical reality is that health care in this country is complicated.  It can’t be re-configured wholesale.  Additionally, experiments that rely heavily on failed math and distributive justice theories (or redistributive theories) are predestined for failure in a society where, like it or not, capitalism continues to reside.

I have colleagues that are small business men/women and self-employed (many consultants are).  They are successful, for the most part, and premiere capitalists.  They are the folks who rely purely on their own skills, intellect, etc. to forge a living for themselves and for the folks they employ. Virtually to a sole, each has had their small business insurance or personal insurance eviscerated by Obamacare.  Unfortunately, none qualify for Medicaid or public subsidy.  Their sole flaw?  They work for themselves or own a small business (or both in most cases).

Certain elitists will claim that their success has come as a result of some oppressive force that hurts a sector of folk less well-off.  The notion that it is about time these folks “paid their fair share”.  Strange logic indeed.  Truth told, these folks have always paid more into the system via taxation and their employment of others.  Likewise, they didn’t get to this stage, nor did I, without committing a single flawed act – worked longer, harder, and sacrificing more disproportionately than many.  Even in the U.S., one isn’t successful ultimately, without putting in a disproportionate share of effort and taking risks that many will simply, not.

The course of failure for Obamacare lies predictably, in its lack of practicality.  It sought to level an artificial playing field created by government via a Robin Hood like approach.  In as much as I love Robin Hood, the perversity in Obamacare is that no legislation can redefine the “haves from the have-nots” (recall, Robin Hood stole from an oppressive government, not from the people – a moral on taxation without representation). The problems of those who don’t “have” is fixable but not at the expense of those who already have and not through a Washington knows best recipe. The result is clear: Obamacare grew out of failed ideology that the “haves” were bad or disproportionately (more) rewarded than those who didn’t have.  Now we know.  Many of those supposed “haves” are nothing more than people who by definition, are middle class or the working class.  The jab isn’t just to my self-employed and small business colleagues but to mid-sized employer plans (non-union) when come 1/1/14, they get a gut kick and thus, so do the employees. Wait until next year when the stomping ramps-up exponentially.

This mess isn’t about failed websites or cancelled individual insurance plans.  It is about a systemic over-reach, destined to fail by design.  Yes, folks point out that Medicaid expansion is by comparison, running smooth.  Enrollment is one thing, access and payment for providers another.  How good of a system is it (Medicaid) when those who now have benefits, can’t find a doctor willing to care for them?  Or, as so much of the U.S. remains rural, can’t find access to a clinic, hospital, or other providers other than one that is hundreds of miles away?  Not my definition of practical or for that matter, smooth.

As I wrote back in 2009, the ACA/Obamacare wasn’t ever about health care reform.  Health care reform was and remains the practical target.  All fixes now going forward are political dynamite and as such, this is the tragedy of Obamacare.  Pragmatically, the flaws in the systems, Medicare and Medicaid, etc., remain and until addressed, finding another way to re-dress this pig with new earrings or a different ensemble will only change the pig’s outward appearance.  Economically, socially and away from the political milieu, answers of a practical nature remain.  We as a nation, need to demand these solutions be at a minimum, discussed and vetted.

November 26, 2013 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Obamacare/ACA: Implications for Providers

This is the second post of a four-part series on the status and implications of the continuing roll-forward/roll-out of the Affordable Care Act (aka Obamacare).  In this post, the context is the implications for providers, given the evolving state of the ACA and some of the current uncertainty of its future.

Important to note: Affirmatively, the ACA has fundamentally changed the health care landscape for providers, regardless of its ultimate fate.  Unraveling the Act in its entirety is virtually impossible.  The ACA as drafted and passed, is a singular layer of law that provides the framework for an incredibly deep-set of regulatory/administrative law provisions.  Illustratively, the ACA is like an onion; broad layers on the outside leading to more intricate, narrow layers on the inside.  It is essentially, an enabling piece of legislation rather than a single or for that matter, bifurcated or trifurcated law focused on enabling, funding and enforcement.  The ACA is written to cause other agencies and entities to exist, to promulgate rules and to cause Congress to fund via a prescriptive mechanism, the evolution of what the ACA was passed to create.  Complex, I know – hence the thousand plus page bill.

Because the ACA ties providers, insurers, employers and individuals ultimately together, the implication for providers is a function of the elements of the law directed at providers (really quite minimal) and all other elements that pertain directly to insurers, employers, individuals and to another extent, government itself.  The latter is where the ACA creates another level of entitlement within the government, primarily through Medicaid expansion and the insurance exchanges.  In short, logically separating the pieces, providers vs. all other groups impacted, clears the picture for providers.

Because the ACA doesn’t structurally change healthcare or for that matter, the major regulatory or payment components, provider implications at the core, are truly minimal.  Arguably, without the ACA, providers would still see a similar level of regulatory activity and reimbursement changes.  These issues are truly separate from the ACA as remember, the ACA doesn’t touch Medicare, Medicaid (other than to expand it) or reform or modify, any other federal conditions of participation.  It didn’t even address the physician payment formula (known as the SGR).  Regardless of the political rhetoric, the ACA only served to create a methodology for spending reductions to offset its associated implementation costs, greater output to states for Medicaid spending, and a series of provider taxes (DME) as a method for internal funding transfers.

What providers experience today in terms of increased fraud vigilance, RACs, rate rebasing, pay for performance (quality measures), changes in HIPAA, Medicare reimbursement cuts, etc. are events non-organic to the ACA.  True, the ACA codified some additional elements such as Accountable Care Organizations and bundled payment demonstrations, etc. but not in any great detail.  The reality is that the ACA didn’t need to exist for these events to occur as the administrative levels within government (Department of Health, CMS, etc.) can create, and has, this level of regulation and activity via agency fiat or other legislative (normative) functions within Congress (budget appropriations, etc.).  These issues and events are all or were all, in motion prior to ACA passage.  Providers would have seen them with or without and perhaps, in quicker time increments as the ACA has muddied the picture rather than made it clearer.

The driving element for providers isn’t the ACA but the changing structural nature of our society, our economy and the federal mechanism for funding and paying for, entitlements.  The ACA doesn’t change these issues or even address them indirectly.  Providers face cuts, regulatory oversight, other regulatory initiatives to make healthcare more “efficient” and outcome driven because of the federal funding issues, growth in entitlements and budget allocation for entitlement spending.  In federal parlance, the cost of and growth of entitlements are too large and too “ineffective” to continue (the last point arguable of course).  Too much money is spent for too little care or ineffectively so and too many people are ending-up in the entitlement pool for government to remain solvent or achieve equilibrium.  Taking away the ACA, the issues remain.  Keeping the ACA, the issues remain.  The ACA didn’t address them nor changed the entitlement window or programmatic elements driving the fiscal course one iota (other again, than to expand certain elements such as Medicaid).

The real implications for providers arise when insurers and consumers fully integrate into the picture.  Today, this is the government’s dilemma.  In the desire of the drafters to create more insureds, improve access, and redistribute the health care pie, the ACA became the poster for “unintended consequences”.  For example, look at the shift in union/labor support for the ACA.  Because the ACA includes a “tax” on benefit rich insurance plans (Cadillac plans) and sets a definitional limit on employee eligibility for firms to provide mandate coverage at 30 hours per work week, the law is directly oppositional to union positions (full-time employment at 40 hours and “privately’ negotiated benefit plans).  The ACA does not exempt collective bargaining plans from tax imposition if the same plans meet the “Cadillac” definition.  Similarly, businesses that wish to avoid the ACA’s employer mandate on insurance benefit plan structure, can do so by reducing their employee work week to under 30 hours.

Why this is the crux of the ACA implication for providers is simple.  Pushing aside current Medicare and Medicaid demand, the remaining demand is “all other”.  This ” all other” category is dominated by privately insured individuals.  The ACA exists to morph this category via mandates on employer plans, mandates on private insurance offerings, and mandates (via taxes or penalties) on individuals to purchase/access insurance.  Assuming, as is presently the case, that nothing more changes in the ACA as written, providers are certain to face the following;

  • Companies that formerly offered insurance benefits to their employees, dropping their plans and opting to pay the ACA penalty.  This will shift more individuals into the expensive private market place purchasing, if they can, higher cost insurance with lower benefit levels.
  • Companies will reduce their work-week hour requirement below to the 30 hour threshold and thus, limit their insurance benefit plan requirements under the ACA. Again, employees formerly insured will now enter the private marketplace, the exchange or Medicaid.
  • Medicaid will expand and the numbers of participants will swell.  The payments from Medicaid will not increase proportionately and thus, while providers may experience less bad debt (although not total elimination), the trade-off is patients with an inadequate payment source.  I know few provider types, perhaps other than hospitals via default, who willingly want to see more patients with Medicaid as their primary payer.
  • Exchange plans, when available, will not come cheap (although subsidies exist for income qualified participants) and in some states, may involve only one plan offering.  We don’t know much about the Federal exchange participants yet.  What we do know is that the elements within the ACA that mandated benefits for private insurance plans, upped the dependent coverage age for adult children, removed pre-existing condition limits and lifetime benefit limits, raises the cost of insurance to levels where affordability is questionable.  The trade for affordability is coverage levels (higher copayments, deductibles, etc.).

When these issues arise, and they are or have to a certain extent already, providers see different consumer behavior.  Lacking insurance or facing reduced benefit levels, individuals will alter their consumption behavior; including the consumption of health care services.  Simply having access to insurance isn’t going to mean for the most directly impacted middle-class/working class, that one can afford it.  While the ACA expands benefits and access via Medicaid and subsidies to the “working poor” (125% or under the Federal poverty limit), it doesn’t protect the cost for anyone else.  Further, its provisions shift financial burdens and incentives among private, non-union benefit plans so much so that many employers will significantly alter their insurance offerings, negatively impacting their employee insureds.  Negative impacts of this type mean individuals behave differently, purchase differently, and access care differently so as to minimize personal financial exposure.  Providers will see demand slack.

The expansion of Medicaid presents a completely different picture for providers.  Picture a group that has previously had minimal to no access to care.  This group is awarded a rich benefit plan typical of any government entitlement program.  Having likely delayed or refrained from using or accessing care other than in a circumstance of urgency, they now have immediate benefits and immediate (perceived) access.  The analogy best suited is a person wins the lottery; sudden wealth and a former lifestyle of delayed or no consumptive gratification.  The likely demand from this new group of Medicaid recipients, once they become aware of their purchasing power via the government, is for care.  The question is, what care and how infirmed and debilitated is this group?  Will providers accept this group?  Can they afford to accept this group?

In answer to the above, we’ll see.  What I know is that as of today, given the present payment mechanisms and levels under Medicaid, few providers will willingly open their doors.  This is particularly true for physicians – the portal to all other care.  Hospitals who have somewhat embraced the Medicaid expansion in general, are today just realizing the somewhat perverse implication that may arise if physicians abdicate Medicaid further – a growing flux in emergency care visits, already a problem for Medicaid and the under/non-insured market.  The ACA doesn’t address this complication and in all cases, makes it worse by expanding a program that is viewed by  providers as a poor payer.

What providers can expect in terms of ACA implications is a fundamental shift in consumer behavior toward health care.  Its not the governmental implication of what the ACA does directly to providers; it is what the ACA does to insurers, employers and consumers.  As the impacts for insurers are employers are shifts in the cost of benefits paradigm (negatively), both will react to reduce exposure and to insulate against financial erosion.  This means providers need to understand that insurance plans will offer less coverage at higher prices, the same coverage with higher cost-share, and employers will reduce employee coverage either directly or indirectly via higher premium levels/cost share.  These elements when applied in an economic element, shift behavior away from consumption, reducing demand for non-essential health care services or toward cheaper alternatives.  Medicaid expands but within the same framework, pouring newly benefit rich consumers into the marketplace.  The problem is that these new consumers, full of pent-up demand, only bring payment at fractional levels of costs.  Plenty of consumption possibilities but at a loss to most if not all providers.

Moving one step forward, socially and economically the picture for providers can be truly unsettling.  The picture for society perhaps even more concerning.  More people, less covered plus more people better covered but via a poor payer (Medicaid) equals less care, not more.  For the Medicaid folks, what good does it do to have a great benefit plan but access to limited providers?  For the insured group, what good does it do to have insurance but at a price and cost-share point that constrains access or places the insured at-risk for accessing the system(s) from a financial perspective?  Providers will see the end result of this social/economic shift and the end result is less core demand and patient flow, demand for services with a less than adequate payment, the risk of more bad debt from those insureds with higher cost-share levels, and a greater reliance on urgent/emergent access for those whose only access is via this portal.

September 6, 2013 Posted by | Policy and Politics - Federal | , , , , , , , , , | Leave a comment

Obamacare/ACA: Where it is at, why and where next

A number of my regular readers and clients routinely ask for my thoughts/analysis on where the Reform Act/Affordable Care Act/Obamacare is at, particularly in-light of the recent one-year delay in the employer mandate.  Given the complexity of this subject and the scope of the overall law, a single post won’t cover the subject adequately.  In compiling my notes, research, etc., the logical approach is to address this subject in four posts;

  • The economic, social and political environment
  • The implications for providers
  • The implications for consumers/employers
  • The “best guess” of what happens next, post-the mandate delays, etc.

This first post, not to state the obvious, is focused on the economic, social and political environment that envelopes the legislation and is impacting its course.

Like the legislation or not or like or not its intent,  the ACA is a fascinating window into current social, economic and political realities.  It by its legislative intent, is a governmental attempt to address a number of social, political and economic factors within one large, overarching piece of law.

  • The rate of spending or expenditures relegated to healthcare in the U.S.
  • The cost of and access to, health insurance for a subset of individuals not covered or inadequately covered through traditional entitlement programs (current or former eligibility tests applicable) or traditional health plans (employer sponsored primarily).
  • The government’s role in assessing the adequacy and quality of provider programs.
  • Certain innovations deemed worthy of further exploration that in theory, will improve efficiency, care delivery and thus, quality as measured via outcomes.
  • The legislative mechanics to accomplish the above (authorizations, funding, delegation to various agencies, creation of other governmental entities for implementation and administration, etc.).

Structurally, the ACA is overlaid across existing governmental programs such as Medicare and Medicaid.  It does virtually nothing to change these programs, their benefits, their funding, etc. Arguably, the most the ACA does to these programs is fine-tune certain elements and add some subtle adjustments to payments and disclosure requirements for providers.  The most notable change within the ACA occurs within Medicaid as the ACA expands the definition (financial) of eligibility allowing people with greater financial means (up to 133% of the federal poverty limit effective in 2014) to participate in the program.

Politically, the need for the ACA was expressed (condensed) as an intervention to increase the number of people in the U.S. with health insurance coverage (reduce the number of uninsured) while simultaneously, “bending the cost curve” on Medicare and other entitlement programs (the rate of spending).  Both intents are laudable.  The latter may be somewhat attained but the cost curve bend, not and certainly, not as a result of the ACA.

The primary reason the ACA will have negligible impact or frankly, none at all in changing federal outlays for healthcare is that it doesn’t address, by legislative language or other, any specific funding and benefit elements of current entitlement programs, save to actually expand benefit eligibility (Medicaid).  It further ties the government to enhanced levels of funding in order to effectuate the expansion.  Additionally, the economic and social factors at play in the U.S. don’t coalesce around the legislation and in fact, are polar opposite to the legislation.

The driving elements of increasing expenditures, current and future, under Medicare and Medicaid are economic and social factors that can’t be adjusted by legislation.  Legislation or policy at its best can only respond to these factors via incentive and alignment but essentially, in the U.S., government fiat doesn’t work to adjust economic and social factors.  Our system of government and enterprise, even with greater regulation and oversight, can’t alter certain mercantile and social forces at play.  Principally;

  • An increasing percent of the population, even without changes to eligibility criteria, is eligible for federal entitlement benefits.  This is fundamentally the case for both programs – Medicare and Medicaid.  The aging population alone is the principal driver for increasing Medicare enrollment.  The economic shift in labor and payroll, an increasing driver for Medicaid eligibility.  These factors can’t be changed by policy unless the policy changes the eligibility in such a manner as to constrain growth.  The ACA did not do that.
  • The economy in the U.S. is in a period of adjustment and it has been now for the past twenty plus years.  This period is continuing and will for at least another twenty or thirty years.  The U.S. is no longer a production-based economy in the traditional sense; it is a consumptive, service based economy.  Economic activity is heavily influenced today by consumer behavior (consumptive) and as it has shifted toward an  employment locus in a service sector, the wage profile is different and lower than what was realized in the former production economy.  See the manufacturing industry as an example, particularly the assembly line style.  Today, the overall number of jobs are fewer, demand higher skills, and are slowly replaced by innovation and automation.  The fear is not overseas manufacturing usurping jobs but onshore technology advances eradicating jobs.  Manufacturing will remain a vital portion of the U.S. economy although not as relevant when viewed as a labor source in quantity.
  • Socially, we have come to expect government to be an arbiter in the distribution and production of health care and health benefits. We expect interventionist policy and the government to employ distributive justice for our care.  One only needs to look at the coverage breadth for government programs compared to private programs to see this evolution.  Gone are the days when private, employer sponsored plans can be considered “Cadillac” coverage compared to government entitlement programs.  Today, the inverse is true as employer plans have scaled options, imbedded greater increments of cost-share, and narrowed provider choices.  Oddly enough, the ACA is an evolved governmental effort to reach into the “private sector” and lay-over, a mandate for expanded coverage, benefits, and conditions – very similar to a government run, entitlement based infrastructure (e.g., no pre-existing condition limitations, no lifetime benefit caps, mandated coverage and benefit levels for group plans, etc.).  If government is, and I believe it is, a reflection or mirror if you will. of present-time, social expectations then one can readily conclude that the ACA exists because the dominant social trend current demands government intervention in health care.

Politics in the U.S. has evolved as well.  The political environment is about wins and losses in and across party divisions and sub-interest groups.  Broad consensus is rarely attainable on issues of substance.  The ACA evolved as a result of a point-in-time shift in central governance – a movement toward an ideological trend that government can and should be more involved in social imbalance.  The truth however is that the present wave of social imbalance, the slow decline of a “middle-class” isn’t fixable by government policy and redistribution.  This shift has occurred as a result of a changing world economy and in the opposite, government policy which hasn’t evolved.  In short, the change in social structure has arisen gradually, across multiple administrations and the trends have been present since the mid-70s.  Government can’t fix or legislate a re-balance.

In order to frame the life or death or evolution of the ACA going forward, the environmental factors of politics, economy and social expectations need dissection. For example, the political environment remains fractured so the likely remedy legislative is as we see today; subtle shifts around the edges, delays, and partial recalibration mostly coming via administrative rule-making and executive order rather than legislation.  While party balances in power may shift moderately, a ground-swell shift is unlikely – the electorate too disjointed and divided for this to occur.

Socially, the structures of society continue to shift.  People are more mobile.  Traditional jobs more scarce especially those with benefits.  Education is required but not necessarily in the form of traditional four-year degrees for many new and evolving jobs. The ability to earn a family supporting or for that matter self-supporting wage without special training or skills is eroding quickly, save for farming to a certain degree.  Wages will not inflate to any large degree for quite some time again, except in certain industries where scarce labor-skill is operative.  Child bearing occurs later and today, in rising numbers within single parent, non-intact couples. Saving rates remain low although personal debt levels have declined but this is likely temporary.  And finally, most individuals don’t view their income allocation toward health care as favorable and would prefer, a greater amount of their income be available for discretionary spending.  As long as this view, not supported economically, remains prevalent, the pressure on government to subsidize or create cheaper health care will remain high.

Economic trends and economies are changing and will continue to evolve for another decade plus.  This essentially means that labor-levels and employment levels are different and will remain different and thus, higher levels (historic) of unemployment, under-employment, income and non-participation will remain.  These factors cause governments to fund entitlements and support programs.  This will change over time as new sub-economies evolve and social structures adjust.  Expectations move and production shifts to balance a mixed demand for different services, goods, and commodities world-wide.  Today, the imbalance however is palpable as fossil fuel production has moved geographically, food production and distribution as well, and manufacturing re-structuring to a heavy industry third-world production and high-tech production and design residing in first-world countries  The U.S. economy will be different and thus so will be standards of living, valuations on real property, consumer behavior,, and credit and investing.  How this shapes the ACA going forward, I’ll delve into in the next series of posts.

August 17, 2013 Posted by | Policy and Politics - Federal, Uncategorized | , , , , , , , , | 2 Comments

Home Health Outlook: 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

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