Over my career, I have done a fair amount of M&A work….CCRCs, SNFs, HHAs, Physician practices, hospice, etc. While each “deal” has lots of nuances, issues, etc. none can be as confusing or as tricky to navigate as the federal payer issues; specifically, the provider number. For SNFs, HHAs, and hospices, an acquisition not properly vetted and structured can bite extremely hard post-closing, if provider liabilities existed pre-close and were unknown and/or unknowable. Even the best due diligence cannot ferret out certain provider number related liabilities.
The Medicare provider number is the unique reference number assigned to each participating provider. When initially originating as a provider, the organization must apply for provider status, await some form of accreditation (for SNFs it is via a state survey and for HHAs and hospice, via private accreditation) and then ultimate approval by Medicare/DHHS. As long as the provider that has obtained the number, remains in good standing with CMS (hasn’t had its provider status/agreement revoked), the provider may participate in and bill, Medicare and Medicaid (as applicable).
Provider numbers are assignable under change of control, providing the assuming party is eligible to participate in the Medicare program (not banned, etc.). Change of control requires change of ownership or control at the PROVIDER level, not the facility or building level. The building in the case of an SNF, is not the PROVIDER – the operator of the SNF is. For example, if Acme SNF is owned and operated by Acme, Inc., then Acme, Inc. is the Provider so long as the SNF license in Acme’s state is to Acme, Inc. Say Acme decides to sell the SNF property to Beta REIT and in turn, Beta leases the facility back to Acme. Acme no longer owns the building but remains the Provider as it continues to hold the license, etc. consistent with the operations of the SNF. Carrying this one step further. Acme decides it no longer wants to run the SNF but wishes to keep the building. It finds Zeta, LLC, an SNF management/operating company, to operate the SNF and leases the operations to Zeta. Zeta receives a license from the state for the SNF and now Zeta is the PROVIDER, even though Acme, Inc. continues to own the building.
In the example above regarding Zeta, the typical process in such a change of control involving the operations of a SNF is for Zeta to assume the provider number of Acme. The paperwork filed with CMS is minimal and occurs concurrent to the closing creating change of control (sale, lease, etc.). What Zeta has done is avoid a lengthier, more arduous process of obtaining a new provider number, leaving Acme’s number with Acme and applying as a new provider at the Acme SNF location. While taking this route seems appealing and quick, doing so comes with potential peril and today, the peril is expansive and perhaps, business altering.
When a provider assumes the provider number of another entity at change of control, the new provider assumes all of the former provider’s related liabilities, etc. attached to the number. CMS does not remove history or “cleanse” the former provider’s history. The etc. today is the most often overlooked;
- Star ratings
- Quality measures including readmission history
- Claim error rate
- MDS data (submitted)
- Federal survey history
- Open ADRs
- Open or pending, probes and RAC audits
The above is in addition to, any payments owed to the Federal government and any fines, forfeitures, penalties, etc. The largest liability is or relates to, the False Claims Act and/or allegations of fraud. These events likely preceded the change of control by quite a distance and are either impossible to know at change of control or discoverable with only great, thorough due diligence. The former in my experience such as whistleblower claims may not arise or be known until many months after the whistleblower’s allegation. During the interim, silence is all that is heard. Under Medicare and federal law, no statute of limitation exists for fraud or False Claims. While it is possible via indemnification language in the deal, to arrest a False Claims Act charge and ultimately unravel the “tape” to source the locus of origin and control at the time of the provider number, the same is not quick and not without legal cost. Assuming the former provider is even around or can be found (I have seen cases where no such trail exists), winning an argument with CMS that the new provider is blameless/not at fault is akin to winning the Battle of Gettysburg – the losses incalculable. Remember, the entity that a provider is dealing with is the Federal government and as such, responsive and quick aren’t going to happen. Check the current status of the administrative appeal backlog as a reference for responsive and quick.
Assuming no payment irregularities occur, the list preceding is daunting enough for pause. Assuming an existing provider number means assuming all that goes with it. On the Federal side, that is a bunch. The assuming party gets the compliance history of the former provider, including the Star rating (no, the rating is not on the SNF facility but on the provider operating the SNF). As I have written before, Star ratings matter today. Inheriting a two Star rating means inheriting a “dog that doesn’t hunt” in today’s competitive landscape. It also means that any work that is planned to increase the Star rating will take time especially if the main “drag” is survey history. The survey history comes with the provider number. That history is where RAC auditors visit and surveyors start whenever complaints arise and/or annual certification surveys commence.
The Quality Measures of the former provider beget those of the assuming provider. This starts the baseline for Value Based Purchasing. It also sets the bar for readmission risk expectations, network negotiations and referral pattern preference under programs such as Bundled Payments. Similarly, all of the previous MDS data submissions come with that same provider number, including those that impact case-mix rates under Medicaid (if applicable). And, not exhaustively last but sufficient for now, all claims experience transfers. This includes the precious error rate that if perilously close to the limit, can trip with one more error to a pre-payment probe owned, by the assuming provider. Only extreme due diligence can discover the current error rate – perhaps.
Avoiding the peril of all of the above and rendering the pursuit or enforcement of indemnification (at the new provider’s expense) a moot issue is simple: Obtain a new provider number. It is a bit time-consuming and does come with a modicum of “brain damage” (it is a government process) but in comparison to what can (and does) happen, a very, very fractional price to pay. In every transaction I have been directly involved with, I have obtained a new provider number. In more than one, it has saved a fair amount of go-forward headache and hassle, particularly on the compliance end. Today, I’d shudder to proceed without a new provider number as the risks of doing so are enormous, particularly in light of the impact of Star ratings, quality measures and survey history. Additionally, the government has never been more vigilant in scrutinizing claims and generating ADRs. Inheriting someone else’s documentation and billing risks genuinely isn’t smart today.
While inappropriate for this post, I could list a plethora of examples and events where failure to obtain a new provider number and status has left the assuming provider with an absolute mess. These stories are now, all too common. Even the best due diligence (I know because my firm does it), cannot glean enough information to justify such a sweeping assumption of risk. Too much cannot be known and even that which can, should be rendered inconsequential by changing provider status. Reliance on a definitive agreement and litigation to sort responsibilities and liabilities is not a prudent tactic. Time and resources are (always) better spent, applying for and receiving, a new provider number and provider status.
Just ahead of the Fourth of July holiday, CMS released its proposed home health rule changes for FY 2015. As common, the proposal includes rate changes/modifications and clarifications and adjustments to Conditions of Participation. The proposed rule continues a path for CMS and the industry of rate reduction/rate rebasing and movement toward greater emphasis on “pay for performance” or should I say, payment reductions for inadequate quality reporting. Following is my summary analysis of key provisions in the proposed rule.
Rate/PPS Update: The target is a payment reduction/spending reduction of .3% or $58 million. This is exclusive of the 2% sequestration cuts. This proposal also includes the effect of year 2 of a 4 year rebasing effort to the HH PPS schedule. The rate mechanics flow as such: A 2.2% increase/payment update less rebasing updates to the national 60 day episode payment rate, less the national per visit rate conversion, less the non-routine supplies conversion factor. The 2.2% increase incorporates a market basket update of 2.6% less the productivity factor of .4%, totaling an increase of 2.2% prior to the adjustments. The Non-Routine Supply reduction is 2.8% and the national 60 day per episode payment includes a planned decrease of $80.95 to $2,922.76.
Face to Face Requirement: CMS is proposing a simplification to the current requirement, eliminating the current narrative note requirement from the encounter. Physicians and/or the discharging facility must still document in the patient’s medical record the need for home-based care (skilled). Re-certifications will still require a face-to-face encounter. CMS also is proposing to eliminate payment to the physician for any face-to-face encounter if the such encounter occurs when the patient is NOT eligible for coverage under the HH Medicare benefit.
Wage Index Changes: Wage indexes inflate or deflate nationalized rates based on relevant location, labor costs. CMS is proposing to update the Home Health Wage Index based on more current data from the Office of Management and Budget (data known as the CBSA or Core Based Statistical Area). The proposed changes would phase-in over a one-year transition period, moving on a blended basis of 50% current Wage Index data and 50% 2015 (updated) data. What we know so far is that providers feeling the biggest shifts are those that reside in the 37 counties presently considered part of an urban area shifting to rural and the 105 counties considered rural shifting to an urban area. For further information on this topic, contact me (via the contact page on this site) or see the actual proposed rule.
Quality Reporting: CMS is proposing to set a minimum submission level of OASIS assessments for 2015 at 70% (less than this level imputes a 2% payment reduction to the provider) and then in subsequent years, move the percentage required for submission up by 10% (e.g., 80% in 2016).
Therapy Reassement Time Frames: The proposed rule would shift the requirement for a licensed therapist to re-assess the therapy plan of care and need from “as close to day 13 and day 19 as possible” to every calendar 14 days.
Coverage for Insulin: CMS is seeking clarification and input into the current list of coverage codes for insulin care (table 28) as to their adequacy in determining the need for skilled care for insulin management in the home. The program does not cover care for individuals capable of self-administration or who have another “person” willing to provide insulin administration as needed.
Revised Definitions for Speech Language Pathologists: Provides clarification that a Speech Language Pathologist is someone who has a graduate degree (accredited) in Speech/Language Pathology, or: is licensed by his/her state and has completed 350 hours of supervised clinical time, or; has at least 9 months experience unsupervised, or; has completed a national competency exam approved by the Secretary of HHS.
Value-Based Purchasing: CMS is offering for comment, a proposed Value Based Purchasing demonstration program in up to 8 states, similar to the hospital program. In this approach, agencies would receive a 5% to 8% adjustment in payment for meeting performance criteria across a designate performance period.
Having jumped around just a bit in the last few weeks “topically”, this post may seem a bit disjointed. It is meant as a continuation of a series I’ve compiled on the various implications providers, consumers, etc. can/will experience under the Affordable Care Act (a/k/a Obamacare). Given the news cycle of late and the recent roll-out of the insurance exchanges under the ACA, many readers may think this post somewhat non-relevant. Begging to differ, the implications for consumers under the ACA are expansive and the surface today is all that is visible.
Setting aside what we know of the exchange access problems and the individual enrollment glitches, the crux of the ACA implications for consumers is cost and ultimately access. The ACA fundamentally resurfaces the consumer insurance landscape and changes the rules in terms of how individuals access insurance, how prices for insurance coverage are determined, and what coverage levels individuals can experience. Promoted as simple, one-size premise approach to accessing coverage, the ACA for consumers doesn’t come anywhere close to its promised result. In fact, consumers can expect a dizzying array of complex choices, cost levels and limited provider and carrier choices (depending on location) than ever before.
The biggest initial jolt for most consumers under the ACA is what will occur within employer sponsored health plans. Employer plans represent the largest source of insurance for consumers, though the participation rate continues to decrease. At present, 59% of individuals receive their health insurance coverage via employer sponsored plans. Given the provisions within the ACA that impact employer plans directly, the projected number of employers that will opt to drop health insurance as a benefit is actually minimal (less than 5%). Where the ACA impact becomes onerous is cost pushed back to the individual. Employer plans are subject to an ACA tax in 2014. Additionally, with or without the employer mandate, fully insured plans via group insurance providers are expected to experience premium increases ranging from 10% to 65%. Why the big difference? Regional differences account for some of the increase and the majority, plan design changes mandated by the ACA. For example, plans formerly offered as high-deductible plans with Medical Savings Accounts can no longer qualify as compliant under the ACA. The mandated plan changes such as full wellness coverage, affordability requirements, and eligibility expansion (must cover individuals working 30 hours or more) are the fundamental drivers to the added premium cost.
For most consumers covered today via an employer sponsored plan, their first reaction to premium levels in 2014 is akin to sticker shock. Two things are certain to occur. First, premiums paid by consumers via their employer plan will rise and in virtually all cases, by minimally 10%. Second, their plans will change, some for the positive and some for the negative. The positive will occur in a trade-off fashion: Richer benefits but at a higher premium. The negative will occur as employers reduce plan benefits to the ACA minimum as a means of offsetting premium increases and where possible, increase employee cost share. Across my client base, the vast majority of which fall in the large employer category under the ACA and presently offer health insurance to their employees, the projected premium increase in 2014 is 15% on average. Eighty plus percent of this group plans on passing along, in the form of cost to the insured, 80 to 90% of the increase.
Certain for consumers, regardless of where they access insurance or how, save those who fit an expanded Medicaid eligibility definition and/or qualify for near full-subsidy in an exchange purchase, is that their health insurance will cost more and thus, their net expendable income will decrease. It is this latter element that represents the biggest impact for consumers and the biggest impact for the economy current. Wage inflation is negligible across virtually all industries. Only certain regions and certain industries are clamoring for labor (oil and gas for example in North Dakota) and thus, scarcity produces rising wages to a modest extent. Presuming a 10% increase in premium cost for an employee covered under an employer plan and an inflationary wage adjustment in 2014 of 2%, the net (simple) decrease to income is 8%. Taking this just a step closer to reality, assume a 14% increase in premium and no wage adjustment or an adjustment of say, 1.5%. The net (simple) decrease to income is 12.5% to 14%. What occurs for a consumer when a change in incomes is so profound is behavioral change. Consider the following as plausible;
- Forestalled large-scale purchases such as homes, major appliances and automobiles.
- Reduced savings and increased consumer debt.
- A continued lag on employment (job) recovery.
- A continued lag on GDP recovery and growth as consumer consumption accounts for approximately 65% of GDP.
For consumers not participating in employer sponsored plans, a similar sticker-shock will occur for all but those that achieve coverage via Medicaid expansion and/or full subsidy through an exchange. What we are already seeing for this group is an evaporation of their current private options and/or premium increases routinely above 25%. For those whose access to coverage is through an exchange, enrollment today is problematic. More problematic is the cost, especially sans complete subsidy. While premiums on their face seem somewhat reasonable, out-of-pocket costs plus premiums for the “bronze” or low-level options equate to 60% of total. For example, a bronze premium for a 40-year-old in Illinois averages $180 per month or $2,160 per year. A bronze plan leaves an out-of-pocket exposure of 40% of health costs save wellness benefits (an annual physical, certain wellness tests). In North Dakota, the cost jumps to $215 per month. This is for an individual only.
Breaking this down to include subsidies, here’s what a nationalized approach looks like using the Silver plan option (middle of the road, 70% of costs covered, average deductible of $2,500 and out-of-pocket maximums of $6,000) under the ACA.
- At 200% of the Federal Poverty Limit, the cost of a Silver plan for an individual ($22,980 annual income) is $1,452 per year and for a family plan, the premium is $2,964 – rates include all subsidies. This equals a total possible cost annually for an individual of $7,452 dollars (premium of $1,452 plus out-of-pocket maximum of $6,000).
- At 300% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $3,276 (range is due to regional pricing differences among carrier options plus income levels and subsidies between 200% and 300%) and for a family, the premium is $6.078 – all subsidies included. The 300% income threshold for an individual is $34,470. At this premium level, the cost exposure is approximately $9,000 per year (premium plus max out-of-pocket).
- At 400% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $4,368 (regional differences and income plus subsidy levels between 300 and 400% of the FPL). The premium for a family is $8,952 – rates include all subsidies. The individual income limit is $45,960.
Per the Kaiser Family Foundation and separately, from a study completed by Deloitte, each of the above options is more expensive for an individual (total cost plus deductible including subsidized premiums) than a typical employer sponsored plan offering. For example, one of my client companies with 300 employees, 225 participants presently offers a single premium, 80/20 plan for $85 per month. They are a very typical company (health care provider) in their industry (just to dispel any reader’s notion that the company is unique in demographics). In comparison, a better plan costs a single employee $1,020 annually versus a subsidized plan for the lowest income group (200% of the FPL) at $1,452 per year.
The Consumer Conclusion? My summary is more, unanticipated cost and fewer options than most expected. The real implication for the consumer is the economic impact. The U.S. labor trend is weak and wage inflation minimal. In such an environment, insurance increases that can’t be offset by wage inflation, reduce consumer income. Reductions in a consumer’s ability to consume via an increase in health insurance cost will create one of two reactions (three in some cases). First, if the consumer stays insured or participating in an employer plan, a reduction in net income available will reduce consumption in all areas. Second, the consumer opts to drop coverage or inclusion, instead paying the minimal penalty. The third option for those presently privately insured, is that they either drop coverage or alter coverage to lower levels as a means of offsetting higher premium costs. What is most disconcerting to me is that the exposure in terms of coverage gaps via out-of-pocket costs under all ACA scenarios is growing and this impact is undoubtedly, negative for economic growth and consumer economic health.
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.
Lately I have fielded a growing number of questions regarding various applications/uses of the False Claims Act and Medicare billing inquiries. What is disconcerting about these inquiries is their source; too many from providers or provider organizations. One in particular arises out of an acquisition and this bears special note and comment which, I have provided toward the end of the post.
To start, the False Claims Act in summarized fashion for healthcare providers relates as follows;
(a) Any person who (1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; (3) conspires to defraud the Government by getting a false or fraudulent claim paid or approved by the Government;. . . or (7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person . . . .
(b) For purposes of this section, the terms “knowing” and “knowingly” mean that a person, with respect to information (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.
What this boils down to for providers is that a False Claim Act violation can occur either via deliberate act such as knowingly submitting a claim that is false or when a provider fails to seek knowledge that is common, acting in reckless disregard to the truth or circumstances surrounding the claim. This latter element creates major risk for providers in terms of their use of outside contractors to provide Medicare covered services under Parts A or B.
Taking the two major facets of the genesis of False Claims Act violations separately, the first element of a deliberate act is fairly straightforward. The majority of risk here occurs when providers bill for services not provided or not required by the patient. For example, in reviewing recent False Claims Act cases in hospice, the deliberate act(s) consist of placing people into the Medicare Hospice benefit that are by disease state, not terminal and/or in other instances, billing for continuous care and not providing the service. In SNFs and arising out of the latest OIG report on SNF Medicare billing practices, upcoding patients to higher RUG categories where services were not provided and/or, not required. Each example is a fairly clear, deliberate act or activity to garner reimbursement (bill the government) for care not required or not provided.
The second facet is more nuanced in so much that a provider can be only tangentially connected yet still guilty of completing a False Claims Act violation. This element occurs when providers utilize third-party contractors to provide certain services yet fail to use due care to determine whether such services were actually provided and/or warranted. In this situation, a provider of a Part A or Part B covered service using a third-party contractor to provide some element of a care service, cannot eliminate the False Claim Act liability by hiding under a veil of a contractual relationship or agreement; especially if the provider caused the contractual relationship to exist and benefitted by the contract (logical). Not knowing a violation occurred or could occur via not employing basic due diligence and standards is considered a willful act under the False Claims Act and thus, a violation subject to remedy and penalty.
Getting more concrete: A provider (SNF, Home Health, etc.) for example, under Part A uses a therapy contractor to provide physical, occupational and/or speech therapy. The contractor provides certain information to the provider, as required by contract, to generate Part A claims. At a later date, claims are reviewed or probed via a ZPIC or RAC process and determined that the same are suspect and unjustified. The provider states that the contractor is to blame yet, cannot substantiate that it took any due care to audit the contractor’s work or to review claims for accuracy and integrity. The contractor in this case may or may not be tangentially liable for the False Claims Act violation, based on the provisions of the contract, but the provider is “totally”. Why? The provider is the organization that fraudulently or falsely billed Medicare and caused the violation, even though its claim that it did nothing knowingly or intentionally (all the contactor) is used as a defense. The False Claims Act does not require deliberate action in perpetrating the event merely a disregard of the truth or the events (hear no evil, see no evil, speak no evil).
With the CMS OIG directly stating its intent to spend more time reviewing SNF claims, particularly those that fall into high therapy RUG categories, and the industry-wide reliance on third-party therapy contractors, SNFs need to pay particular attention to the definitions within the False Claims Act. Of principal importance is the requirement or lack thereof, of direct action. Merely a failure to hold contractors accountable and to exercise due diligence as part of the claims submission/billing process can lead to a False Claims Act violation. As I have written before, the simple action (or in this case, inaction) of failing to benchmark RUG levels against national and regional data, to employ an outside resource to periodically test claims, and to monitor the basic provision of care from contractors is all that is required to fit into the category of “reckless disregard” for the truth or accuracy of claims submitted.
Lastly, as mentioned initially, False Claims Act violations that arise from an acquisition, while rare, can occur. I know of one specific case and the circumstances are daunting and troubling. When an acquirer assumes a provider number from an acquired provider, the assumption comes with liability for prior acts. As no statute of limitation exists for fraud, the acquirer is thus the same provider as the original provider via assumption of the former provider number and status. CMS does not differentiate as to the circumstantial aspects of liability for fraudulent actions between providers. While a purchase agreement may stipulate limitations on liabilities arising from prior actions of the former provider, CMS’ enforcement and remedies don’t translate similarly. In other words, CMS will seek enforcement and issue remedies against the current provider, even if the acts were committed by the former provider. The sole remedy for the acquirer is contractual, removed entirely from CMS. As contractual disputes require time and remedy through arbitration or court proceedings, enforcement and other remedies from CMS do not. The actions taken by CMS are independent of the contract between the seller and the acquirer. Again, the “we didn’t know” defense is useless as the assumption is on the part of CMS, “you chose to assume the provider number and the liabilities that inure thereto (such that they existed)”.
My best advice to acquirers, and I have gone down this road many times, is to obtain new provider status via application and issuance of a new provider number. I know this process can be a bit timely and bureaucratic but nonetheless, it stands as the only surefire way to immunize the acquirer from former actions of the seller, at least where Medicare. billing irregularities and False Claims Act violations are concerned. The alternative remedy is extensive and thorough pre-closing due diligence on claims and frankly, this process is more tedious, onerous, and expensive than obtaining a new provider number. Additionally, sellers can get “cranky” from the required probing to complete a thorough due diligence of claim activity, such that deals can easily morph negative. Finally, never and I mean never, assume a contract during the acquisition, especially where the contract is for a third-party provision of care and services tangential to Medicare/Medicaid claims. Negotiate new; for safety sake.
Heading into round 2 of a three round debate format (tonight), I think its time to put a few core concepts on paper (or e-media in this case) for folks to remember about this political season. My role or task here is not to be partisan (your decision suffices on this front) but to be focused on the “heart” of the subject, not the rhetoric that permeates the debates and the political reports. In short, rather than slicing and dicing on things that ultimately matter very little, let’s look quickly at why elections have consequences.
- In the system of government tried and true in the U.S., the presidential election is relatively unimportant in the daily life consequences of citizens. Promises about tax cuts, passage of certain legislation, removing certain regulations or adding new ones is pure rhetoric. Our system does not afford the President such powers. He/she is not a king or even a legislator as powerful as the Speaker of the House. The election with more consequence is the one where seats in the House (all) and the Senate are open. So goes the political balance, so goes the ability for any president to achieve policy agenda priority.
- Where the President matters in elections isn’t often discussed in a debate or is certainly, glossed over. The Presidency is a position of state; a leader to the international world and the domestic (entirety) world. In this regard, the election is about certainty, purpose and vision.
- The next president will likely play a very critical role in shaping the judicial branch of the government as four justices are over 76, one with pancreatic cancer and another who has openly said he will retire post this term and the election. While the President can’t appoint any old person without confirmation, wide deference is given to this appointment and but in rare exceptions, confirmations are all but certain.
- Rhetoric and policy language aside, the Presidency in an election is all about picking someone who can truly galvanize compromise, not push ideology. The best at this role includes names like Reagan, Roosevelt, Kennedy and Lincoln. They knew that ideology stabilized voters and painted a picture but that the true job was about action not rhetoric, photo opps and speeches.
What is at stake today is an array of deep challenges across a breath of policy fronts. The following list is not exhaustive but prioritized by a guy who is an economist by study and a health policy and health care businessman by trade.
- Its time to ignore the phony math and crazy skewed data published with regard to certain economic indicators spewed across the airwaves. The reality is that economic growth expressed via GDP is stagnant and it has been for quite some time. Unemployment, underemployment and personal income is at perilous levels and not improving. The recent drop in unemployment is about as real at the main street level as the Tooth Fairy. Yet, jobs do exist that pay well but the gap between skill levels and the job requirements continues to widen. Manufacturing has changed and today, it requires skilled work. So do health care jobs. We also need to somehow, do a better job reminding our children that not everyone is suited for a career in management and most jobs, require that you show up, work hard and maybe, just maybe, get a little dirty now and then.
- Bad, forget that, horrendous and irresponsible fiscal policy from Washington has the country facing what many are calling “the fiscal cliff”. The timing could not be much worse given the health (lack thereof) of the economy. Defense spending and sequestration cuts are hardly the major issue here – the cuts are very minimal and parceled out over a decade. The issue here is revenue and Washington has boogered-up tax policy via tax credits, one-time reductions, etc. so as to create a Phantom Menace around personal and corporate income. The first priority at hand is to create revenue certainty and simplicity via sane tax policy. The next is to rationally, reign in non-essential spending.
- There is no path to prosperity (sorry Paul) and no way forward without entitlement reform – large-scale, total. Entitlements consume every dollar of revenue today and no tax policy fixes that equation. Reform must occur. One of the most ironic and frankly scary conversations I have with hospital folks is around Medicaid and Medicaid expansion. When hospitals argue that Medicaid expansion is a good thing because it reduces the number of non-paid services provided, I know we have come to an end. As the old Pogo cartoon strip relayed, “We have met the enemy and he is us”. Continuing to do more of a dumb thing faster, with more money on a broader scale only produces more stupidity. Expanding entitlements with debt financing is about as idiotic of a proposition as I can think of, regardless of who gets paid.
- Drilling for more fossil fuel is not a solution to becoming energy sufficient, creating more end-product capacity is. We need to invest in refinery capacity and modernization and locating the same where it logistically belongs. We also need to drop the “green is good” at any cost if we expect the economy to recover. Green is only as good as the return on the investment dictates. Using food for fuel is a stupid idea especially since the only way it is economically feasible is with federal subsidies. It is even more idiotic when viewed in light of the energy input required to produce an ounce of a product that is less efficient. And no, I am not anti-environment as I am avid outdoorsman and a life supporter of Ducks Unlimited. I am a pragmatist and I know that economies seek equilibrium – balance.
- To rebuild the “American Dream” (if this language suits), we need to get everyone in the U.S. to again have “skin in the game”. We aren’t there and in fact, we continue to widen the gap between those who pay and those who don’t. In a bad CBS interview when Mitt Romney was asked if it was fair that a man of his status in life paid less by rate in taxes than someone earning $50,000 per year, Mitt bombed. The fact is that Mitt pays more in rate, at his 15% or so, than the person earning $50,000 or $60,000 today. This is even after giving millions to charity, which if imputed into this tax rate, raises it even higher. Trust me, I am not a die-hard Mitt fan nor am I advocating for him. The plain reality is that the incentives need to align so that everyone has skin in this game not disproportionately more by income. If for no other reason than getting it right, we need to quit pointing fingers and bashing the Mitt Romney’s of the world as last I checked, Mitt earned his money and created lots of jobs. He isn’t even as rich as Bill Gates or probably, Brad Pitt but no one bashes Brad. How many jobs did Brad create? I know the answer for Bill. Class warfare is ugly and we are busiest today trying to escalate the war.
- As I have written before and I live through it and see it daily, certainty is lacking. The real issues we face require simplicity and certainty in order for jobs to grow, homes to be sold and businesses to grow and multiply. This is less about numbers and more about policy. Governments stink at and are incapable of redistributing “wealth” and legislating morality (unless the government is a totalitarian state and as history has shown, those don’t last real long). Wealth balance comes from matching productive inputs with an investment return such that it is equal or greater in value to the input, to create sufficient and when needed growing levels of inputs – this system creates balance across executives and workers alike, proportionately. We can’t evolve to a system that is punitive to those who take risk and lever their talent for handsome reward because arbitrarily to some, this isn’t fair. I’ll defend Brad Pitt’s right to make gazillions if people are willing to reward his “input” in the form of acting talent, etc., even though I don’t think much of his movies or his acting. Truth be told, he earned it and took the risks and leveraged whatever his gifts were and no governmental entity should try to redistribute his earnings to someone else in the guise of “fairness”. He should pay proportionate by rate and rate alone, taxes but no different from someone who uses his/her talent to weld. If Brad wants to redistribute his wealth via charity, that is his choice.
Happy debate watching – enough said – for now.
Probably the biggest trend as of late is my tardiness in getting these posts out on-time…sorry. My end of the week (last week) got distorted as I needed to attend a meeting with regard to a Medicaid shift in Kansas from fee-for-service to “managed”. As I have been through these conversions or switches before, it’s always interesting to watch provider reaction, the MCO presentations, etc. I hate to be cynical about these transitions but past-experiences suggest that the Kansas experiment will suffer from the same issues I have witnessed in other states – a rather bumpy take-off. States that have a large rural Medicaid population tend to struggle to get networks built and enrollment in-place “timely” (ala Kentucky’s issues).
In one regard, I’m actually glad I’m a tad behind as this weekend produced some rather interesting political news sure to focus debate more directly on healthcare. This said, below is what I am following now and expect to follow as a trend for a while yet. In addition, this week’s Fall Out issues are a tad different as they come from readers and industry insiders and thus, are a shade different “in perspective”.
Politics and Healthcare: Moving on from last week, politics remains on my radar for a few reasons. First, as I admitted last week, I’m a policy and politics “junkie”, fascinated by the mix of fact and fiction and what “sticks” where. Second, there is a great deal of healthcare meat on the table and with the inclusion of Paul Ryan on the Republican ticket, the Medicare/Medicaid political barbecue has just been lit. As a confession, I do know Paul quite well and have worked on past campaigns on his behalf. He’s an oddity in political circles as his substance is far greater than his political profile. So as the gloves start to come off, my watch is how the issues regarding entitlement spending play out. The cold hard reality is this: Entitlement spending on Medicare, Medicaid and Social Security is greater than the total revenue intake of the Federal government from all sources. Healthcare reform via the ACA widens this gap for minimally, the next ten years. After this ten-year period, its anybody’s guess as to where the spending line will level. Embedded in the ACA is a series of cuts to Medicare of $700 plus billion to make the numbers sort-of work. What we don’t know is the impact of Medicaid expansion and how state’s will respond (either in favor of or against). The debate forthcoming is about as stark of a difference in approaches as found in recent political cycles. Romney/Ryan would eviscerate as much of the ACA as possible, opting for a managed, fee-for-service landscape that includes primarily federal block grant funding and privatized initiatives to contain costs and assure access. The ACA as we all know by now, is more directive in its approaches, utilizing governmental policy and insurance plans to garner greater levels of coverage while funding ideal innovations in delivery (ACOs, etc.). I liken the ideological difference to hands-on and hands-off.
Med B Therapy Exception Change: Like many, I’ve been waiting to see how this rolls-out and now we have some answers. CMS has foretold of changes to the current outpatient therapy cap exception process under Part B, moving the process from a “deemed” exception methodology to one requiring authorization from a Medicare contractor (ala prior authorization beyond the cap). Providers will be able to submit exception requests to a designated contractor every 20 days and per the law, receive a decision within 10 days. If no decision is made in the 10 day window, the request is deemed “granted”. Denials with reasons are given to the provider with a chace to re-submit. This first-phase rolls out October 1 and providers can begin processing requests in mid-September. The current cap limit is $3,700, separated between PT/Speech and OT (non-aggregated). On my radar is the industry reaction and how providers will begin to formulate their strategies for attaining exceptions via this new process. I’ll be more interested to see how many exceptions are denied initially, come mid-September/October 1 as I suspect the number to relatively high and variable between contractors. Rarely do these initiatives work as intended and rarer still is uniformity of decisions between the Contractors.
Medicare Cuts and Sequestration: In the heart of the political season, the Obama administration is required within the next 30 days to announce the implementation of a 2% Medicare cut, effective January 1, 2013. This “cut” is the result of current legislative failures (and no legislation presently on the table) to produce a $1 trillion package of deficit reduction. Recall, last year’s Super Committee created a legislative compromise to raise the debt ceiling via an either-or approach: Either find a deficit reduction package or automatic cuts would occur. This is the “sequestration” implication; required action without new legislation. Within the next month, the Obama administration is required to report to Congress its plan for implementing the 2% cuts – Medicaid is not part of the cuts. Congress then must decide to accept the plan or revise the plan. What I am watching is less the substance of the report (where the cuts come from) and more the political drama that will ensue. Congressional dysfunction is engrained in Washington so I am doubtful that a plan revision is even possible. I suspect a piece of legislation that evaporates the issue via bi-partisan delay (the Potomac two-step) until after the elections.
Medicaid Expansion:Back on my radar thanks to one small piece of news from Washington this past week – a kinder, gentler tone on how state’s can or cannot expand and the CMS reaction to such a decision. Essentially, CMS has taken the tone of “doesn’t really matter to us” and states can somewhat take their time. The new “position” came from the CMS head of Medicaid and CHIP. The message is that states can choose to expand as early as January 1, 2014 or delay if desired. Her only message is that delay will result in non-optimized federal funding (additional dollars from the Feds to implement expansion). In effect, the message is take-it or leave-it and we’re fine with either – a stark difference from earlier messages that incorporated threats fof dire funding cuts for states that didn’t get on the expansion bandwagon. The Supreme Court’s decision clearly changed the CMS rhetoric. My watch now is how states decide to craft their bargain with the Feds for FY 2013. As I have mentioned in prior posts, state budgets are a mess and full funding of expansion is tantalizing to some and to others, a scary proposition. Again, I think November’s elections are the make or break point for many “red” governed states.
My Fall Out issues this week come from readers and industry insiders. Here is their take on what they see;
- From a reader and colleague in the Infusion/DME industry in response to my last week’s What’s Trending….To your point on audits within each sector of healthcare, us infusion providers are being hit with CERT, ADR, and now PERM audits. We have decided to stop sending certain claims to Medicare because every claim is triggering a CERT audit. Wonderful effect on my cash flow. The PERM audit put me over the edge…I need to send the medical record to the PERM contractor due to a $1.90 payment. That’s right, one dollar and ninety cents. I called the contractor in Baltimore, and asked if I could just send a check for the money in question, because it will cost more in electricity to print paper copies from our EMR…the person was not amused. They have no sense of humor. Seriously, these audits are putting a major crunch in resource allocation. Each CERT request is generating 30-40 pages of documentation.
- From a colleague who reads and who I often discuss economics and policy issues with (he’s a risk consultant)….
% of the 2012 Federal Budget of $3.8 Trillion
Medicare, Medicaid and Other Healthcare $ .836 Trillion 22%
Social Security .798 Trillion 21%
Defense .722 Trillion 19%
Interest on the Federal Debt .228 Trillion 6% (sub total 68%)
Other Welfare Programs .722 Trillion 19%
Education .152 Trillion 4%
Foreign Affairs .038 Trillion 1%
All Other Government Spending . .304 Trillion 8%
2012 Total Federal Spending $3.800 Trillion 100%
2012 Total Tax Revenues 2.473 Trillion 65%
$1.327 Trillion 35% (Federal Deficit for 2012)
$16.400 Trillion (Total Federal Deficit)
Let’s add up just 1) Medicare/Medicaid, 2) Social Security, 3) Defense and 4) Interest on the National Debt. (22% + 21% + 19% + 6% = 68%) These 4 items total 68% of the Federal Budget.
We could shut down the ENTIRE FEDERAL GOVERNMENT except for these 4 programs and WE STILL DON’T BALANCE THE BUDGET !!!
What are our Presidential and Congressional Candidates saying:
1. Just cut government waste.
2. Just lower taxes and the economy will grow its way out of this fiscal mess.
3. Just control government spending
4. Just tax the a) rich and b) big corporations more
5. Just cut Entitlements and things will be all right. Obviously, these individuals are using such slogans to get elected. What will it take to fix things? This is the magic question. It will probably require all of the following:
a. Significant cuts in Entitlement programs and Defense
b. Tax increases most likely significant increases for all of us who pay taxes.
c. Significant changes/cuts in government employee pension and retiree health insurance benefits.
d. Spending cuts across the board in all other government areas
What about Welfare programs? How much can we cut? Another good question. Cuts will need to be made here too. However, do you want to live in a society where the disabled, sick, aged, poor, unemployed and other disadvantaged individuals live like they do in India, Haiti, South Africa? Is there welfare fraud in these programs? Yes. Is it pervasive and widely abused? I don’t think so.
The medicine to fix this mess will not be pleasant. We all must suffer. No exceptions. The rich, middle class and poor. Government employees including the police, firefighters, teachers and military. Wall Street investors, bankers, doctors, lawyers. Big corporations, small and medium sized businesses. All of us. The trick will be how to do it in a fair and equitable way. Good luck with that.
Will our elected officials have the political will to act before it is a crisis? Unfortunately, there is no evidence of it. There will need to be a crisis.
So, we are basically SCREWED no matter who we elect. There is an old saying “People get the government they deserve.” Needless to say, we deserve the medicine we will be forced to swallow in the coming years for not paying attention to what was happening in Congress, the state legislatures, county boards and municipal council chambers.
And this is only the Federal budget. God help us when all the other levels of government finish with us, i.e. State, County, City, Village, Township. Each of these have their own financial troubles to deal with. Guess how they will fix these? Same song different verse.
- Finally, from a reader and colleague in the hospice industry….What went wrong? Those of us in hospice for the past twenty plus years were kind of like kindergarten teachers; we did it because we loved it and thought what we were doing was noble and proper. We never intended to make a ton of money on caring for the terminally ill and in reality, we never did. We raised money to make ends meet and we never thought of drumming up business by hanging out at nursing homes and telling the nursing home that we could make them money by taking their Medicaid/Medicare residents and putting them on hospice. When we went to a nursing home and took care of someone, it was because the person was truly dying and proof of point, they generally did in short-order. I am truly depressed to see these mega-corps tarnish what I love and think of as the most important service on earth and all because shareholders just want more return. What happened to “care” coming first and profit coming to those who put “care” first?
Until next time and as always, keep the feedback coming and keep the faith!
A frequent, recurring question that I field, especially for CCRCs and seniors housing providers is “what” financial feasibility tests are most important before a project is started or for that matter, financed. Given that capital is still relatively tight, project feasibility and key financial tests are today, critically important to assure the best financing terms available plus, project viability. Below, I’ve broken out the initial “best” feasibility tools/tests to work through once a scope and general cost is known.
- Revenue Efficiency: This is very simple: How much of the proposed project square footage produces revenue? The more square feet tied to revenue generating functions, the more revenue efficient the project is. For seniors housing, the factor or test is very important. Too often, I see proposed projects that allocate way too much space to commons and other areas that aren’t related to revenue production. While groups will argue that these spaces are necessary to attract prospective renters/residents, the reality is that smaller, more efficient is better from an operating standpoint and frankly, even from a marketing standpoint. Too much space can give the project a “vacant” feel while driving up costs related to heating/air conditioning, maintenance, furnishings, etc. Ratios of revenue producing square feet to common or non-revenue producing square feet of 70/30 or less, tend to work best from a feasibility standpoint. I’ll tie this point tighter in subsequent segments.
- Prospective Rate Test by Square Foot: While rate charged is a function for many providers of market or other perceived and financially tied projections, a first basic test should involve a simple equalization model based on project square feet. In fact, this test is an easily built model that can be used for many rate setting exercises and revenue pro formas. First, total the revenue producing square feet in the project. Next, determine the project’s projected or known, fixed costs, variable costs and desired margin. Finally, decide at what level, stabilized occupancy will occur (e.g, 85%, 90%, etc.). Hint: Amounts or levels greater than 95% are not realistic. Once the aforementioned data is determined, divide the total of fixed, variable and margin (annualized) by the total revenue producing square feet, divided by 12 for a monthly factor or 365 for a daily factor. Finally, multiply this result by the stabilized occupancy percentage. The result is the gross revenue per square foot required by the project to cover the fixed and variable costs plus generate the desired margin. To equate this number to prospective rates, multiply it by the unit square footage for each unit type in the project. Next, analyze the results compared to market. Are the rates calculated attainable? If the rates are ultimately not, can the revenue be picked-up elsewhere via a shift among unit types? Are the costs too high? Back to the first point, is too much of the project square footage not tied to revenue production?
- Occupancy Tests: Knowing what the projected gross revenue is on a square foot basis provides a basis for conducting some simple occupancy tests via adjusting fill-rates, overall occupancy rates, payer mix, etc. Using the same formula above but varying the occupancy, it become easy to see the relationships between square foot expenses, particularly those that are fixed and the revenue levels required to cover these expenses. I like to analyze the ratios between each or, how much occupancy do I need to cover fixed expenses (percentage) and where can I massage variable expenses based on occupancy levels or payer mix. Typically, once a simple spreadsheet with square foot costs and revenues is built, it is fairly easy to do assumptive modeling and analyses.
- Payback Testing: An important analysis or test too often ignored or, assumed to be tied to a debt service amortization schedule, is payback testing. Payback should be factored to occur on or before the point in the project’s useful life, when major improvements need to occur. The point here is that the project ideally is paid-for before major improvements occur, commonly known as the period of re-building. At this point, one shouldn’t look at a scenario of re-building when the original debt or expenditure (if equity is the source) isn’t already recovered or substantially defeased. If this doesn’t occur, the capital improvement process is akin to building the project twice (or major portions thereof). In simple theory, new buildings or new construction provides a window of time where capital infusion for improvements is minimal if almost non-existent. This period is where incremental cash (assuming proper pricing at sustainable occupancy levels) can accumulate, allocated for payback (either via faster current debt repayment or investment for future repayment when the arbitrage is positive). My preferred methodology for this analysis is to develop a cash flow analysis where revenue is netted against cash expenses, including debt service. I set my targeted payoff period as that time in the future where projected improvements via major system, structural, etc. upgrades will occur – typically by years 12 to 14. I also will net my annual cash flow by anticipated or projected capital improvement expenditures that use “cash”. For inflation assumptions, or investment assumptions, I try to use actual or historic data and I err on the side of conservatism. Two methods can be used in this approach. One that negates principal repayment in “real-time” and one that incorporates incremental principal repayment. If debt is involved and on an amortization schedule with principal repayment incorporated, its easiest to assume a declining balance for the payback analysis. If the source of funds is equity or a combination of debt and equity, I assume equity repayment at a current cost of capital rate and while I may not create an amortization schedule with imputed principal payments (equity repayment), I will assume a “balloon” effect by imputing a cost of capital return assumption on the equity.
Ideally, this type of analysis is done sufficiently ahead of project finalization. If such is the case, the project can be adjusted to conform to a proper payback period, be optimally efficient, and have a rate/revenue structure that fits within the target market.
Literally fresh off of a significant rate adjustment/reduction in October (2011), Medpac (the Medicare Payment Advisory Commission) releases a recommendation for complete SNF payment overhaul. In their assessment of the SNF payment system under Medicare, Medpac concludes the following;
- Medicare payments to SNFs represent 23% of all revenues. Medicare (payer) as a share of SNF patient days averages 12%.
- Provider supply and occupancy rates remain essentially flat year-over-year (2009-2010).
- Quality as determined through survey and other indicators remains unchanged.
- Average Medicare margin is 18.5%. The average margin for for-profit SNFs is 20.7% and for non-profits, 9.5%.
The crux of the Medpac argument is that efficient providers have lower costs (about 10%) and higher quality as evidenced by higher rates of community discharges (38% higher) and lower rates of rehospitalizations (17% lower). Accordingly, Medpac believes that the current system, inclusive of recent adjustments to rates (October) is set to produce the same level of behavior and outcomes, plus account for a 14.6% average margin in 2012. The argument put forth by Medpac is that the Medicare SNF system must be re-based, principally due to the fact that margins have run consistently above 10% since 2000 and the correlation between margins and patient case-mix is non-existent. In summary, the Medpac recommendation, which will head to Congress in the upcoming months, is to revise the PPS system now and begin rebasing rates in 2014, in phases. In addition, Medpac is calling for a rehospitalization impact (negative) to rates for poor performing SNFs.
Ordinarily, Medpac recommendations such as this have more of a “frame the argument” impact than a real implementation objective. Congress has been reluctant to take steps this drastic to any Medicare provider group for fear of industry fall-out and political damage. Yet, as we have seen with the home health industry, greater movement is possible where rate cuts are concerned, particularly if the general tone is that the industry is too profitable and said profit is coming from gaming the system. Double digit margins seem to get even Congressional types’ attention.
Looking at the industry, how the rate reductions in 2011 transpired, the initial report/recommendations from Medpac, and the current public policy environment in Washington, my near term rate outlook for SNFs is as follows.
- All the evidence suggests PPS refinement is forthcoming. The system simply isn’t working adequately in terms of tying payment rates to care costs and rewarding quality. The “behavior” effect that CMS is looking for, namely a movement away from “rate ramping” focused on rehab case-mixes to rate equalization focused on a balanced book of Medicare patients (balanced case-mix) isn’t happening and apparently, isn’t properly incented in the current system.
- Rebasing isn’t far-fetched but it is aways off. CMS is prone to be exceptionally slow at devising payment systems and of course, equally inept at getting the infrastructure to work properly. If as I believe, the first step is PPS refinement, given the likely horizon of implementation, rebasing is farther away; certainly farther than 2014.
- There is no question that payments will become tied to certain quality indicators, especially rehospitalizations. This trend is foretold in the PPACA (Reform) and regardless of the law’s future (life or death or limbo), the payment tied to quality trend is here to stay.
- Politically, the will to champion what will be viewed as over-payments is far less than the will to find ways to rein in excess (or perceived excess). All this means, regardless of the upcoming political cycle and elections, is that lobbying for a system that continues to produce average margins north of 14% will fall on principally deaf ears on the Hill.
- Rates are trending down and I suspect another round of flat to modest decreases in rates forthcoming in October. The push will be system revision as opposed to just rate reductions, feeling that the best approach is to revamp the existing PPS and in so doing, create lower spending overall.
- Time tested arguments against cuts that won’t work or have run their course are as follows;
- Medicare margins are necessary to offset Medicaid losses. This one is good on its face but in reality, its tough to make the case for margins that have run in the 20% range and earnings that have been solid among the for-profit companies. The publicly traded guys need to show pain (in the form of earnings) before Congress will relent on the lack of merit for this argument (publicly traded SNFs tend to have higher MA census and higher Medicare census).
- Access will become an issue and facilities will close. Per Medpac and most industry observers, the supply today is adequate and slightly surplus so some continued shrinkage isn’t a big concern.
- Job losses will certainly occur. The latest cuts from October don’t support this argument by any magnitude. Additionally, the overall health care industry is growing so worker displacement isn’t really a grave concern – movement is easy between providers in most markets.
- Capital will be even more difficult to access with future negative rate outlooks. Again, this is a decent argument but in reality, capital access is provider specific and CMS and policy makers realize that well run, profitable providers will continue to have access to capital, even if the industry outlook is negative. A better argument is that negative industry outlooks make capital marginally more expensive and the number of outlets fewer. This is true only in the short-run however.
So in conclusion, here’s the take-away: Medicare rates are headed down in the near term and in the intermediate term. It is a virtual certainty that the present PPS system will be revised over the next three to five years. The future of the PPACA will impact this process as elements of reform shift the landscape for all providers. The debt discussions in Washington will have literally no direct impact on the future of Medicare SNF payments; the industry share of the overall spending pie is negligible enough to not be overly impacted by automatic cuts in federal spending. The future is one where providers must learn to balance their overall Medicare book/case-mix and focus on quality. Quality incentives/penalties are a certainty and there is no longer any room left to ignore outcomes such as discharges and rehospitalizations. Likewise, I believe bundled payments are forthcoming and the further development of ACOs will continue to shift SNFs to align their care and product/service offerings toward outcome oriented, bundled payments. Medicare as a payer source will remain profitable for many SNFs although not at the same margin levels seen over the past decade. Profitability ranges will trend into the high single digits or perhaps slightly more but only for providers with a well-balanced case-mix. As always however, the key to making money in this declining reimbursement environment stems from solid management, a well-balanced payer mix, and an operating infrastructure that is aligned with the incentives remaining in the industry.
Last week I published a post regarding Medicare fraud that is occurring in the post-acute industry. The post is available at http://wp.me/ptUlY-ak . At the end, I indicated that I would provide a follow-up post; a closer piece more succinct on why the fraud trend is heating up and what the drivers for this trend are. In short, while the two posts (this one and the one from last week) can stand-alone, readers with interest in this topic are advised to read both.
In the previous post, I indicated that Medicare in and of itself is an instigator of some of the recent fraud activity. The very nature of the program, how it pays, what it pays for and how its claim adjudication processes and benefit structures are configured establishes an environment that is a veritable Petri dish for providers looking to “game the system”. By design, Medicare itself is uniquely flawed as it creates an incentive environment for ramping-up procedures, utilization and acuity thus leaving wide interpretive room retrospectively about the necessity of the care provided to any one or any group of patients. Similarly, as the predominant payment methodology under Medicare is prospective, not based on a series of medical necessity tests, any third-party utilization review administered by qualified individuals will invariably find payments made for procedures, care, diagnostics, medications, et.al., that proved, knowing the final outcome of the care provided to a patient or group of patients, to be unnecessary or perhaps, greater in amount than what was truly required. The assessment tools and tools of predetermination of need or necessity that drive prospective payments under Medicare, while lengthy, bureaucratic and ill-defined, rely extensively on human judgement and input that is subjective in many regards. The playing field thus is truly wide-open and when combined with the implied incentive that more achieves higher payment, a clear or even abstract environment is present for fraud.
Behind the process of payment and the benefit administration elements of Medicare lies a whole series of laws and agency administrative codes that seek to define what is fraudulent behavior where Medicare is concerned. Truly, this body of work is the purview of lawyers. In my years of travel throughout the healthcare industry, rare do I encounter folks at the operations levels, administrative levels, clinical levels or financial levels of healthcare organizations that completely grasp the depth and nuances of these laws. In fact, because the topic and information is arcane and uniquely legal, I often encounter multiple consultants and even lawyers, that don’t understand it. Frankly, I have spent time with consultants from large, well established practices whose content knowledge in this subject area is poor to non-existent and thus, outright wrong.
Taking the foregoing and placing it into an evolving conclusion, the puzzle starts to become clearer as to why “fraud” is spreading as rapidly as it is. First, Medicare itself begets a certain level of activity that is specious. Second, the laws that define fraud are convoluted and constantly evolving. Third, the people at the organization level rarely understand the laws and to be honest, their jobs are not charged with “knowing” the depths of what Medicare and its associated agencies, consider as fraud. Finally, all too many third parties that organizations rely on routinely for expertise are no more versed in compliance and the fraud laws than the organizations themselves.
In its most simplified form (lawyers please hold the laughs as my role is to employ wherever possible the KISS principle), fraud under Medicare can be boiled down as follows.
- Anti-Kickback: Forbids any individual or organization that is involved in the provision of care reimbursed or covered under Medicare or Medicaid from receiving a financial incentive or inducement associated with a referral, the provision of service, utilization or marketing of a service. The Anti-Kickback provision has been broadly employed to cover contractors, lease arrangements, referral arrangements, purchasing arrangements, etc. A growing and today, somewhat common use of the Anti-Kickback laws are the relationships between SNFs and Hospices, vendor relationships with SNFs, pharmaceutical and equipment suppliers, provider organizations, and lease arrangements between Medicare providers. Most interesting to note is the after-practice or after-violation OIG activity where Anti-Kickback language arises following a Whistleblower action of some form. In short, I am seeing more activity here not as a de novo action started by CMS but following after, a Qui Tam suit. Because of the breadth of activity that falls under Anti-Kickback, it isn’t surprising that this area is the most misunderstood by providers. For example, I routinely see situations where SNFs enter into or seek, agreements with diagnostic providers (radiology, laboratory, etc.) for fee levels below Medicare fee-screens or allowable levels. Equally not surprising, I’ve watched this activity escalate concurrent with reimbursement cuts under Part A.
- False Claims Act: Defines as a violation, any activity where a person or organization, intentionally and/or knowingly, causes payment to be made or seeks to cause payment to me made under Medicare or Medicaid for care that is improperly provided, provided illegally, unneccessary, etc. Common applications or violations include upcoding, services not rendered, bundling or unbundling, services rendered illegally or unprofessional (not within a prescribed professional practice standard), phantom patients, kickbacks or inducements (see Anti-Kickback), and improper certifications or false certifications. In most recent periods, like application under Anti-Kickback laws, the False Claims Act violations of significant magnitude seem to arise from Qui Tam actions. Again, this areas of fraud is broadening rapidly as the methodology used by providers to create additional patient volume can and has run afoul of the False Claims Act (reference AseraCare’s most recent Qui Tam suit). This area is a literal mine field for many post-acute providers and rapidly becoming an extremely hot interest area within the Medicare Hospice arena and the SNF arena. What I see that is most disturbing for providers is their near complete failure to understand that a contract arrangement for services provided under Part A imputes False Claim Act liability to both parties. Case in point: SNFs and therapy contract agreements. Even though the therapy company may be completely at fault for upcoding therapy RUGs and thereby creating a scenario for violation under the False Claims Act, the SNF cannot escape the liability and culpability for the same violation under the Act as it is the Part A provider and the entity that generated the fraudulent claim to Medicare. I am seeing the same application of False Claim Act provisions in the relationships between SNFs and Hospices where both parties were overtly engaged in certifying a resident as terminal when no such terminal condition truly existed. In these situations, there is often dual application as the reimbursement crosses Medicare and Medicaid.
- Stark Laws (collective): Created and then adapted via a series of additional laws, Stark fundamentally covers physician self-referral for Medicare and Medicaid patients. At the core is a theme of separating physician interests where, given a physician’s ability to direct patient flow, ownership or financial benefit arising out of a referral is a prohibited activity. Stark governs ownership, investment and beneficial compensation arrangements between physicians and other Medicare and Medicaid providers. As is true with all Medicare/Medicaid fraud related laws, Stark is complicated. The law is loaded with nuances that arose across Stark’s three phases (Stark I, II and III) that cover an inordinately wide range of activities that are part and parcel to physician practices and their relationships under Medicare and Medicaid. Stark also has a series of “safe harbors”; practices that on their face may be violations but when conducted in certain ways and manners, the practice is not a violation. The establishment of these safe harbors principally arose to deal with issues where certain practices crossed between Stark and the Anti-Kickback laws. Examples of existing safe harbors are physician investments in joint-ventures in underserved areas, practitioner recruitment in underserved areas, physician investments in their own group practices (provided the practice group meets Stark definitions), and specialty referral relationships where the referral from a primary care physician to a specialist includes a fundamental understanding that the specialists will refer the patient back to the original primary care physician for continued care (money or other inducements cannot be a part of this referral process). Within the post-acute industry, the most common Stark violations I see are the relationships between contracted physicians serving as Medical Directors in Hospices, Home Health Agencies and Nursing Homes where the compensation relationships are not properly structured to avoid compensation ties to referrals or to avoid improper compensation limits (inducements) above and beyond market and Medicare norms.
A quick review of the above laws and their simplified descriptions suggests that conducting or continuing certain practices is a proverbial “dance with the devil”. The question posed thus, is why does fraud rise to the level that it does and seemingly, on a broad basis within organizations that have the resources to understand the laws and their implications? The answer is: Market and Economics. Consider the following;
- Literally today in the U.S., there are more providers and capacity than true organic demand, when demand is correlated to “paying demand”. Arguably, demand is probably sufficient enough to fill all capacity but when placed into the context of demand that pays in amounts equal or greater than the fixed and variable cost of providing the service, the “desired demand” is less than the current provider capacity. If one were to re-frame demand to include payment equal to or greater than the fixed and variable costs of service plus a margin, the remaining demand is shaved lower yet again. It is this level of demand that produces considerable competition among providers, often to levels where provider survival is at stake unless new sources of paying patients can be developed. When cases such as the recent Qui Tams involving Vitas and Asercare arise, one can quickly understand the inherent pressure within these organizations of developing new sources of patients, even if doing so runs afoul of Medicare anti-fraud laws. In essence, the risk of organizational failure, poor performance, reduction in corporate value, etc. is greater than the risk of being inviolate of one or Medicare anti-fraud laws. Taken marginally deeper, the truth is that there are simply not enough core (by definition under the Medicare hospice benefit) hospice patients at any one point in time, with adequate payment, to meet the overall capacity in the industry. The same holds true for home health and is becoming more apparent in the SNF sector.
- Market areas and their demographics and economic conditions change faster than healthcare providers can react and thus, what was at one point a good market may no longer be (one need only look at Michigan and in particular the Detroit area and corridor areas). Operationally, even for remote office agencies such as found in home health and hospice, healthcare service provision involves a certain level of fixed investment and for certain, infrastructure investment. Providers that have witnessed market fortunes change and thus, paying volumes shift, are stressed to replace dying or dwindling volumes with other volumes. All too often, I watch once unthought of marketing practices, taboo relationships, referral relationships, and specious coding practices develop almost in concert with market changes. The alternative? Shutter offices, lay-off people, write down investments or abandon buildings. For providers that have gone this route, the pain can be almost unbearable as trying to exit a now dead or severely decayed market is far from fluid; potential users or buyers of infrastructure don’t tend to relish the opportunity to enter a decaying or impaired environment.
- While in former periods of economic decline, healthcare remained mostly immune from too much spill-over impact, the latest decline and continued stagnation violated past experience. The reason is less one-side economically and more about a wider incorporation of elements that are causes and effects of the current economic circumstances. Simply stated: This current period of recession and stagnation contains more elements of public policy causes than market forces. This is particularly true for healthcare. Though past economic periods evidenced rise and fall, recovering for market purposes in almost predictable fashion post fall, such is not the current case, fundamentally due to the public policy issues that are dogging a normative recovery. What this recession showed clearer than any other is that our economy is structurally unsound and our core time-held ideologies regarding the role of entitlements in a first-world leading society awash in smoke and mirrors; promises that are unsustainable and moreover, fiscally impossible to fund. Thus, for providers, two forces are at work today (and for the immediate future) to constrain any real growth in payments and volume. First, without a more robust growth in employment (non-governmental) and overall economic activity, those without health insurance will remain greater in number than historic (a payer source reduction) and programs reliant on tax revenues for funding, facing mounting deficits (Medicaid and Medicare). In economic periods when unemployment remains high, pressure mounts on governments to take-on a greater responsibility of social welfare, during a period where revenues via taxation sources are declining or on-balance, stable but lower than normal levels. As the burden falls on entitlements, deficits increase to shift resources toward these programs. Different in this period is that the balance sheet room to simply create more “credit” or “dollars” ( deficits) to shift toward entitlements is functionally non-existent. The recipe today that on the economic front drives an element of fraudulent behavior is this. One part fewer paying patients as benefit levels for health coverage have evaporated or waned. Another part diminished resources from patients to pay for services, even where some level of benefit may still be intact. Two parts an outlook of Medicare cuts and reductions. One part current cuts to Medicaid payments, a program that already under-compensates providers for their costs of care. And finally, three parts Washington policy makers awash in dysfunction, lacking fiscal clarity at each turn and an inability to generate traction on any programmatic plans of common sense that would create some level of stability and reassurance (the three parts are the House, the Senate, and White House). To weather the malaise and compensate for what is and likely what will be, providers turn to paths creative. The paths I too often see are by destination, a road to fraud. Whether the activity is upcoding for patients that do not fit a higher level of reimbursement to engaging in contract negotiations at rates below Medicare allowable amounts to help offset reimbursement reductions, to billing at certain levels and providing care below the level billed to create a margin, each activity (and I could list many others) is at least in major part, a direct reflection on the current economy that is overlaid on healthcare.