False Claims Act: Providers Beware
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.
Catching Up, Part II: Home Health and Hospice
As the week concluded (sort of), I’m about half-way back in terms of cutting through the stacks of research and notes that I compiled through August and into early September. While time away from work is necessary for my sanity, it certainly promotes insanity upon return. Below is Part II of “catching up”, entirely focused on home health and hospice.
Home Health: The last few years have been rough for the home health industry and in particular, the major players such as Gentiva and Amedysis. A quick replay of “what” has transpired over the past few years is key to understanding why the industry is where it is today. Beginning in 2009 and 2010, Medpac issued (in its annual report to Congress), unflattering findings regarding industry growth and profit margins. Integral to its comments was a focus on the growth tied not only to rate but to utilization patterns – particularly therapy services. Of course, Congress is somewhat to blame for a rapid increase in home therapy under Medicare as it believed that patients were denied adequate therapy services in their homes due to poor reimbursement rates. In 2008, CMS altered a “bonus” provision based on therapy visits to combat a perceived reduction in therapy services to home bound patients as the “stay” or coverage period elongated. Previous, the bonus of a few thousand dollars kicked in after 10 visits. The change incorporated bonuses for visits beyond six, and then beyond 14 and then beyond 20 – each incrementally higher. As one would suspect, HHAs altered their service provisions to maximize visits and bonuses according to the new schedule. Medpac sounded a subtle alarm.
In the summer of 2011, the Senate Finance Committee began an inquiry into the billing and utilization practices of the home health industry under the Medicare program. Particular focus was paid to the biggest providers (Amedysis, Gentiva, Almost Family, LHC, etc.). In October of 2011, the Wall Street Journal published an article foretelling the Senate Finance Committee’s findings. Stopping just short of accusing Amedysis, Gentiva and LHC of fraud, the article indicated that these providers effectively “gamed” the reimbursement system and structured referrals and visits to maximize reimbursement under Medicare. The irony (in the story) is that all providers in every segment, follow similar practices perhaps just a shade less overt. The trigger to the inquiry was less the behavior suspected but more the profit margins the major companies were posting on Medicare book-business of plus 80%. In short, 17 plus percent Medicare margins was the problem.
Fast forward to present, the industry has struggled since with the major players Amedysis, Gentiva, LHC, et.al., all producing earnings reductions and corresponding lower share prices. Amedysis stock price has dropped from a mid 2011 price of $38 per share to $15.50. It had sunk as low as $10 per share in January. Gentiva went from the mid-twenty dollar range in early 2011 to under $3.00 in mid-fall of 2011. Today, it has rebounded to $12,50, still more than $10 per share under its average price in early 2011. Almost Family fell from the upper $30’s in early 2011 to $10.50 in January. It has since rebounded to $21.50, more than $15 dollars off the highs of 2011. LHC went from $30 per share in early 2011 to $18.50 today, falling to $13.00 in early 2012. For Amedysis, the biggest Medicare provider of home health, earnings are off 65% compared to a year ago and revenue has shrunk by $17 million over the same time frame ($12 million of which is Medicare). The sole reason for the changes in fortune for the “big” players and the industry? Medicare payment reductions. This stems from an overt attempt on the part of CMS to reign-in the industry growth and to lower the profitability of Medicare as a payer. Conceptually, as reported by Medpac, Medicare is and has been, too generous in its payments. The belief is that a reduction in payments to more normative profit levels (whatever that is in government speak) won’t limit access or reduce significantly, the number of providers in the industry. So far, from my vantage point, this is accurate.
Across most (virtually all) business elements, the prospects for the Home Health industry as far as Medicare is concerned, remain bleak. The primary reason is continued reimbursement cuts under Medicare. On October 1, the 2013 Medicare rate reduces by .10%. While this is almost good news, the possibility of sequestration cuts (the fiscal cliff, mandatory spending reductions from the budget impasse deal of 2011) layering on an additional 2% reduction looms as more bad news. For Amedysis, a valued agreement with Humana ended on September 1. This contract evaporation will have a negative effect on go forward revenues and earnings. For all of the industry, future guidance on market basket rebasing foreshadows more bad news than good news as rate rescission via rebasing is a continued certainty. If this isn’t enough to chill growth and earnings prospects near term, the implications going forward of a Value Based Purchasing program under Medicare for home health ices the cake. This pay-for-performance approach, mandated under the ACA, will require substantive changes for the industry in terms of mirroring utilization, cost, and quality data across a series of industry metrics. Like hospitals, the proposed structure (as evolving) under a VBP approach provides withholds for poor performance and offers incentives for improvement. The true net result of these types of programs is lower outlays – a clear initiative to reduce utilization and to target certain behaviors economically – pay for performance. I have the report to Congress submitted by the DHHS regarding implementation of a VBP program if anyone would like a copy – e-mail me at hislop3@msn.com or add a comment to this post with a valid e-mail and I will forward the PDF to you.
Home Health summary from me: Be prepared for some rocky roads ahead. The best, good news for the industry is the continued development of ACOs and other integrated care models and networks. Home Health is a key component in ACO models and thus, for those agencies heavily invested and infrastructure ready on the management of chronic diseases, the ground going forward is fertile, assuming supporting outcome and patient satisfaction data confirms the “agency case for support”. Alas, the Amedysis, Gentiva, et.al. high-flying, heydays are over but room still exists for growth and profitability for those than can culturally shift and revamp their revenue and profitability models to the “new” reality.
Hospice: This is another industry segment that is struggling somewhat as census gains for most providers are flat and utilization trends bear no long-term “real” growth. For the past eighteen months, I’ve watched the hospice industry rather closely and even closer, the fraud cases opening and ongoing. As I have written in previous posts, there is a “core” simple reason so much fraud is occurring in the industry; too many providers chasing too few truly, organically terminal patients. For ease of definitional purposes, organically terminal is a patient that presents with a condition or series of conditions that sans aggressive or interventionist treatment, will die within six months or less. True, a few live a shade longer but in actuality, fully 90% should and would pass away inside of six months. Using just this definition, the Medicare definition, a quick analysis of utilization data suggests that the industry is likely over-sized by nearly 33% (a third). Essentially, one-third of the agencies could fold (although geographically, this may be problematic) and the patients that fit the Medicare definition would continue to be adequately served.
Some will no doubt ask (or holler at me), “how do you know”? The answer: Simple math. Looking at utilization data produced by Medicare by diagnosis and length of stay tells me that the fastest growing diagnoses are neurological disorders, debility/failure to thrive and dementia. When I pull-out clear neurological diseases that are organically terminal, I’m left with a hodge-podge of “all other”. Correlate the growth in these diagnoses with the accelerating trend in longer lengths of stay and a picture of questionable certification becomes visible. Next, I look at length of stay by places of care to see “where” this trend is leading. Oddly enough, there is no evidence of expanding lengths of stay occurring when the “place” of care is at “home” or within a hospice inpatient environment. The visible expansion is occurring when the patient resides in a nursing home or an assisted living facility. Finally, I circled back to the OIG report on the industry from 2011 and their findings that 82% of the claims reviewed for patients residing in nursing homes did not meet the Medicare coverage criteria. While no doubt some of these claim errors are a result of poor documentation and clerical errors, the evidence seen almost daily in and across industry related fraud actions points to an inordinately high rate of “specious” certifications. To the point one step further, the same report noted that “hundreds” of hospices had more than two-thirds of their case load coming from nursing home patients.
It is hard to conclude otherwise that the industry is not fraught with an over-supply of providers and thus, a underwave of potentially fraudulent claims. What is evident from the cases involving Vitas, Gentiva/Odyssey, SouthernCare, HospiceCare of Kansas, and the Hospice of the Comforter (and I could go on) is that without stretching coverage criteria determinations and inducing referrals and kicking-back dollars for less than qualified patients, the industry would be a good amount smaller in provider numbers than where it is today. De Facto: If you have to cheat to survive, you have no real business stability. As with home health, I suspect rocky roads ahead for the industry and increasing regulatory scrutiny industry-wide. The good providers will survive but not without having to navigate some minefields.
What’s Trending: A Friday the 13th in July Perspective
Back after a week of vacation (sort of) and then a week of scramble to catch up, here’s the latest that I am watching and that I find trending from readers and clients.
Medicaid and Health Care Reform: Oddly, this has been a Medicaid week for me on a number of fronts. The Supreme Court decision that caught most policy folk off-guard regarding the constitutionality of the PPACA “mandate” provision included a delightful twist on the implementation of the Medicaid expansion provisions within the Act. Effectively, the Supreme Court said that the Federal government has no authority to force states to implement Medicaid expansion via the threat of funding cuts. The net result is that states now have the option to determine whether they expand coverage in accordance with the PPACA or not. Just this week, we began to get a glimpse of how this nuance from the Supreme Court might play out in various state capitols.
The crux of the debate erupting in states like Kansas, Wisconsin, Texas, Ohio and Arizona (others likely within the next months) is whether abdication from Medicaid expansion is a good idea given the provisions within the Act (PPACA) which provide full federal funding for the expansion for the first three years and then a triturated level of funding (though still higher than current FMAP funding) for succeeding years. Estimates suggest that the additional funding for Medicaid expansion will cost the Federal government $1 trillion over the ten-year period, commencing with the start of expansion. To the point: States such as those mentioned above are justifiably leery that the Federal government may not have the fiscal capability of sustaining the expanded funding and of course, the added unfunded cost that states that adopt expansion will occur as the full funding pledge devolves after the third year. Present Medicaid deficits expanded dramatically in recent months as a result of the sunset of the enhanced FMAP provided under the ARRA (Stimulus). States like Kansas and Kentucky have moved away from fee-for-service Medicaid to a managed, privately insured option in order to control and hopefully, reduce their Medicaid deficits.
Personally, I think this issue is going to loom large this fall as clearly, states governed by Republicans are setting-up a Medicaid expansion “boycott” for various political and policy reasons. DHHS Secretary Sebilius warned this week that while not participating in expansion is an option, cutting or constraining eligibility, including the expanded eligibility provided under the Act would not be permitted. DHHS’ take is that states don’t have to provide expanded insurance coverage as provided in the Act but the eligibility for Medicaid coverage would expand regardless – a potential odd mix of “I’m eligible but not in this state” kind of equation.
Psychoactive Medications and Nursing Homes: Topically, this issue is like a song I hear on the radio and then, can’t get the tune out of my head. This week, the DHHS OIG issues a report based on a review of assessments and documentation (sample) of nursing home residents medicated with psychoactive drugs and states that fully 99% of the assessments did not support the clinical use of a medication or category of medications that are by definition, psychoactive. Over and over again in some policy discussion or report, the issue of misuse of antipsychotics/psychoactive medications in nursing homes pops up. The Senate sought to attach an Informed Consent provision on a bill that would require further substantiation and discussion prior to the use of psychoactive drugs. Earlier, DHHS/CMS sought to create a requirement via rule making separating dispensing pharmacy duties from consulting pharmacy duties, under the guise that when the two are connected, inappropriate psychoactive medication issues proliferate (nonsensical but still, another measure designed to curtail inappropriate drug use in nursing homes).
Given how frequently this issue continues to arise, I’m watching for some sort of enhanced regulatory scrutiny and enforcement action to come forth. The Federal Conditions of Participation require that psychoactive medications not be used inappropriately and for restraint purposes, limiting to use to true, clinically justified mental illness. I know, and so does CMS, that all too often in all too many facilities, this is not the case and clearly, the documentation does not exist to support the medications used. Generally, when issues repeat in multiple modalities, something is brewing. For SNFs, get on this or trust me, the surveyors will soon get on you.
Medicare Claim Scrutiny for SNFs: Over the last six months, I have lost track of how many times I have warned providers about this; focused reviews of Medicare rehab claims. This enhanced contractor focused activity is based on two CMS conclusions. First, there is program fraud occurring, particularly focused on SNFs that continue to ramp-up therapy claims seeking higher reimbursements. Second, CMS is looking at RUG refinement and rebasing. Here’s the take-away and this advice hasn’t changed. SNFs need to carefully monitor their RUG distributions and particularly, their therapy contractors if they are using one. Additionally, get current MDS training and certifications in-place for your MDS Coordinator and any other clinical staff integrated in the MDS/Medicare reimbursement process. Use an external auditor to review your claims on a periodic basis to detect billing and coding abnormalities. Failure to minimally take these actions means a significant risk area is open. What I have seen to date in terms of probes and audits is nasty and in virtually every case, deserved by the SNF.
Fall Out Issues of the Week:The following are issues/trends that I’ve watched this past week that are worth briefly noting.
- Wellcare Medicaid Fraud Qui Tam settlement across nine states. Wellcare is one the big players in Medicaid managed care and it will be interesting to see how the news of the settlement impacts their viability in their existing states and in states where they are bidding for additional managed Medicaid contracts.
- The Wellpoint acquisition of Amerigroup also is interesting. Amerigroup was continuing to push for managed Medicaid contracts in various states and Wellpoint clearly interested in market share in this Medicaid environment, took a moderate sized competitor out of the mix.
- In an above comment I noted how scrutiny of SNF Medicare claims is on the rise. The source of this anti-fraud activity is private contractors called ZPICs or Zone Program Integrity Contractors. These entities are specifically engaged by CMS to detect Medicare claim fraud. In a recent study released by OIG on ZPICs, it was noted that many of the contractors had conflicts of interest which could question their impartiality. I find this fascinating as in typical fashion, the government uses a methodology to combat fraud whereby its own program is far from impartial or clean.
Senate Back and Forth on Psychoactive Medication Regs
Last week, Senators Kohl, Grassley and Blumenthal introduced an amendment to an existing FDA bill that would require the informed consent of nursing home patients or their legal surrogates before certain anti-psychotic/psychoactive medications were given. The target of this legislative initiative is to reduce the use of certain types of drugs commonly used to treat serious, chronic mental illness such as Risperdal and Haldol. Despite FDA black box warnings with regard to the side-effects of these types of drugs and their unwarranted use in patients suffering from dementia (Alzheimer’s and other forms), research and evidence supports that use in the elderly to chemically control behaviors remains widespread, particularly in nursing homes. A 2011 Inspector General report illustrated wide-spread use as documented by Medicare claims for psychoactive medications not corollary to a specific mental illness; one that would typically be treated by anti-psychotic therapy (schizophrenia, bipolar disorder, etc.). Extrapolating from Medicare claim data, the report found that 14% of nursing home patients were undergoing inappropriate anti-psychotic therapy for non mental illness purposes – defined by OIG as atypical drug therapy. Perhaps most troubling is that (per the report), 88% of the use fell within the FDA black box warnings or, use for diagnoses unrelated to mental illness. The link to the full report is http://oig.hhs.gov/oei/reports/oei-07-08-00150.pdf
Despite the appearance of wide-spread, bipartisan support for the amendment, the amendment was removed from the final bill. Procedurally, the original legislation already had significant proposed amendments and to garner passage, the final bill was streamlined. Indications are that the legislative effort to require additional safe-guards such as informed consent to limit psychoactive/anti-psychotic therapies in the elderly is possible. Interesting to note is that Senator Kohl is from Wisconsin; a state that enacted its own law requiring informed consent for psychoactive medication therapy in nursing homes.
Apparently, CMS is still searching for vehicles to curb unnecessary drug use in nursing home patients, particularly psychoactive therapies. Recall earlier in the year, CMS was about to promulgate rules requiring the separation of pharmacy duties, requiring that consultant pharmacists not be employed by the dispensing pharmacy. The logic used to justify the proposed (since dead) rule is the wide-spread use of psychoactive medications. Theoretically, separating consulting and dispensing duties would reduce inappropriate therapies. Curiously, rules exist and survey instructions the same, to hold nursing homes accountable for unnecessary drug use and to enforce the requirement that every medication have a corresponding clinical justification. Accordingly, if the CMS/OIG indicates that clinical justification for the majority of psychoactive medications is erroneous or non-existent, then targeted enforcement of existing regulation seems the logical next step; though I am on principle, in favor of informed consent for anti-psychotic use.
Post-Acute Issues Worth Watching
In my recent work and across recent discussions, phone conferences, etc., I’ve encountered a thematic trend; a circle of issues or as in reference to geese, perhaps a gaggle. Doing a bit of research and sifting through notes written over the past few weeks, here is what is trending.
Pharmacy: In October of last year, CMS issued a proposed rule with a provision inserted which, if published within a final rule, would prohibit consulting pharmacists in SNFs to be employed by or contracted with, the dispensing pharmacy. The theory is that when consultations are performed by pharmacists employed by or affiliated with, the dispensing pharmacy, there exists a greater potential for SNF residents to have as part of their medication regime, higher levels of anti-psychotic drugs, psychoactive drugs, and an increased level of unnecessary or unwarranted drugs. Of concern to most of us working in the post-acute/healthcare arena is that CMS can point to no specific data or research to support this theory, save a well-known fact (historically) that seniors in SNFs use far more anti-psychotic and psychoactive medications that seniors in non-instiutional settings. Drawing a bright-line conclusion that consulting pharmacists related to dispensing pharmacies are the cause is boneheaded to say the least.
Despite this flawed view on the part of CMS and the comments generated during the comment period, my sources inside the D.C. beltway are saying that CMS will publish a final rule soon including a provision requiring SNFs to use independent consultant pharmacists, effective January 1, 2013. Assuming this does occur as I am hearing, SNFs today should begin to work to develop a plan to source possible options ASAP. The inherent difficulty of course is;
- Insufficient supplies of pharmacists, particularly those that have current clinical consulting experience.
- In light of the point above, pharmacists with access to clinical consultation software applications.
- Knowledge – Geriatrics and chronic disease is a specialized field.
- Time and efficiency – getting to know the residents and their respective drug regimens will take a non-affiliated consultant longer.
- Cost – finding a source will not come cheap.
Some options do exist for SNFs in the right market areas. My best advice is to approach hospital systems, work with universities with pharmacy schools, band together with other SNFs, and start now to build a consultant’s package with your current consulting pharmacist, assuming he/she is working with your dispensing pharmacy. It is likely the dispensing pharmacy will work with its SNF clients to a great degree, trying as best possible not to lose the current dispensing business as a result of being a barrier in a transition period.
Hospice and Fraud: Most people who are close to the hospice industry either foresaw or should have seen, the current investigative and crack-down activity from OIG and CMS. The industry in terms of providers and benefit utilization, grew substantially over the past decade, despite overall health care utilization remaining on a relatively slow-growth to no-growth plane. For people like me who watch the industry closely, it was illogical to assume that a growth of terminally ill individuals suddenly sprouted and maintained the growth rate recently evident. The same logic concerns were expressed by Medpac and the OIG with the OIG specifically warning of forthcoming investigations where the bulk of a hospice’s patient encounters arose from nursing home contracts. Just last July, the HHS OIG indicated that it found that hundreds of hospice agencies relied on nursing homes for over two-thirds of their case load. Other reports from Medpac and the OIG found that literally half if not more of these proto-typical nursing home patients under the hospice benefit, did not meet one or more of the qualifying criteria for coverage/certification.
While the large agencies, predominantly investor-owned will be on the radar, even smaller and regional agencies are coming under scrutiny. CMS reports, and I have encountered this first-hand, that claim denials are up, particularly at re-cert periods. Diagnoses are being scrutinized carefully, with CMS looking at re-certs and probing for some evidence of deterioration or movement toward death. CMS knows that certain diagnoses and patient locations correlate to longer stays and as such, the audit focus is squarely on this relationship.
For hospices, the direction is clear – be wary and cautious of certain patient types and the “nursing home/assisted living” patient flow. Nursing homes and assisted living facilities are not necessarily gold-mines of potential referrals, In fact, the true number of organically terminal patients that would/will fit the hospice benefit criteria is not much greater from an overall ratio perspective, than the number found in the general population. While the business relationships between a hospice and a SNF or assisted living facility appear attractive, it is the attractiveness that also makes the same perilous today unless smartly coordinated and managed.
For the past couple of years or so, the hospice growth trend in terms of referrals has been slow to flat. Nothing regarding the recent fraud cases in the industry suggests this trend to arrest. If anything, I expect to see the trend marginally down for a period with the industry actually contracting in terms of the number of providers. Some will simply call it quits while others will sell or merge. Either way, expect fewer total providers and a stable to decreasing referral pattern shift.
Qui Tam, Me Too: The latest round of major fraud actions and False Claims Act identified violations arose out of Qui Tam actions or more commonly, Whistleblower actions. While the Federal government is clearly targeting certain post-acute segments (see OIG 2012 workplan), equally as profound an impact on the industry is the proliferation of former employees and/or contractors willing to disclose less than scrupulous provider behavior. While this element of the law always existed (enforcement and recovery via a private citizen for a portion of the recovery settlement), it has clearly grown to a new level in recent years. The reasons? First, down economies bring forth certain behaviors on the part of businesses pressured to generate earnings and revenue growth. If no organic growth exists within the business sector or market(s) a business occupies, it is incumbent upon the business to find new ways to mine potential market niches. This is very apparent within the hospice sector and in the Medicare component of the SNF industry. The pressure to build revenues in non-growth periods inherently leads to some corner-cutting or machinations that run afoul of the False Claims Act. Shrinking or saving to a profit while a short-run strategy, is nearly impossible to maintain over a longer term horizon without shedding fixed costs as well; very difficult.
The problem inherent with manipulation of Medicare coding, billing, referral requirements, etc., is that what seems good or plausible at a 20,000 foot level must also seem good and plausible at the ten foot level; a level where multiple people must buy-in to the same structural arguments, beliefs and incentives. As the folks existing at the ten foot level rarely see the same level of incentive nor have perhaps, the same level of “skin” in the game, any level of apprehension arising on their part or disgruntlement can be quickly structured into a Qui Tam action. Mix equal parts news coverage with employees disgruntled by certain practices with a growing element of the bar (lawyers) seeking Qui Tam actions with a government willing to pursue these actions and you have a fairly fertile tract of ground for more Qui Tam events.
The moral of this story is that organizations need to be very vigilant concerning their compliance activity, removing any incentives tied to new revenue growth without some counter-balance of audit and scrutiny. Too many times I have heard providers tout abnormally good results in segments or sectors that are flat to under-performing. This is a red flag simply from the standpoint of “why you and not everyone else” logic. If for example, an SNF has an inordinately strong, high paying rehab case-mix and therapy productivity, my counsel is always around “red flag”. Any facility’s profile should match close to the national case-mix distribution and when it doesn’t, either abnormally low or high, its time to delve deeper. The same is true with hospice growth, nursing home days, length of stay and percentage of continuous care designations. Remember the age-old economic axiom – “what gets rewarded or paid for, gets done”. Incentives perversely aligned within the boundaries of False Claims Act risk areas are ripe for peril and thus, someone within the organization or tangentially connected to this process, to cry foul with today, the expectation of a decent future pay-day.
Revenue and Earnings Cautions: In light of some of my comments regarding Qui Tam above, certain post-acute sectors are seeing revenue reductions and thus, earnings shortfalls resulting from Medicare payment reductions and fraud/probe activity. Hospice is a segment that I predict will continue to under-perform as growth is truly non-existent and where growth was attainable via SNF relationships, clearly constrained by federal oversight. Additionally, the SNF industry will suffer as well. Kindred’s recent earnings announcement showed this quite clearly. Medicare cuts impacting therapy RUGs primarily will impact SNF organizations that relied on “mining” certain RUG categories for revenue and margin. Without a more streamlined and balanced revenue model, the Medicare reduction comes faster than the trailing operational improvements possible via rebalancing the business enterprise. Kindred announced as much as it intends to shrink its facility holdings via non-lease renewals and concentrate on building a more efficient revenue/expense equation. Remember, fixed costs are the most difficult to shed and variable costs, tough to align in tight labor markets and markets where patient populations flux daily. In short, only so much can be gained via trimming variable expenses and typically, the amounts are less than adequate to offset revenue reductions and protect margin.
Quality or Quit: The final issue and one that has been lurking in the shadows and unfortunately, ignored by too many providers, is the issue building around “quality”. The frank reality is that from all my sources in Washington and around the various policy arenas is that quality is what matters. There is a prevailing and growing belief that payment must be tied to quality and that government must do everything within its power, regulatory and otherwise, to push providers to deliver better outcomes, more efficiently. This is the genesis of the ACO movement. I have heard directly from important policy and political figures, directed at provider organizations and industry segments, produce “Quality or Quit” the business. Providers have longed believed that quality was the furthest thing linked directly to payment, even though lip service was given to the subject. For post-acute providers and industry segments, the recent release of proposed outcome measures by the National Quality Forum (anyone wishing a copy, e-mail me and I will forward) is a good place to start grasping what is coming, and in a big hurry. Providers across the post-acute spectrum that are not presently, directly and seriously engaged in measuring key care outcomes, need to get up to speed quickly. Reimbursement will be tied to quality measures and more important, providers that are not jointly participating up-stream and down-stream in quality improvement across industry segments, will not see the level or quality of referrals necessary to stay in business.
Medicare Fraud and Why; Part II
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.
Medicare, Fraud and Why: Perspectives on the Post-Acute Industry
What never ceases to amaze me is the amount of post-news discussion that occurs when certain issues rise to the front-page (or near the front page). Seemingly, industry side-liners awaken and look in disbelief that one major provider organization or another is again, embroiled in some OIG investigation, lawsuit or official inquiry concerning their Medicare billing and/or care provided to Medicare patients. The word “fraud” is tossed out quickly; the shock value of vulgarity at a cocktail party in polite company is expected. Statistics from qualified and unqualified sources burst forth claiming, some correct, that approximately 20 to 30% of care paid for by Medicare is inappropriate, unwarranted, unnecessary or down-right fraudulent. Truth be told, the unwarranted, inappropriate, and unnecessary talk is like Monday morning quarterbacking; an easy sport to engage in when all the facts are visible and the outcomes known. The real question that is rarely, if ever addressed, is “why” do these issues consistently arise and most often, among the same provider organizations.
The simplest answer as to “why” the issues of fraud and inappropriate care and billing arise (routinely) is Medicare itself. Any payment system that rewards via higher payment, greater or increasing levels of acuity and utilization is ripe for provider organizations to chase the greater reward, even if doing so stretches the limit on necessary or warranted care. Think pro sports. Higher dollars go to players that hit more home runs than singles or for average. In fact, less than a few years ago, the prize for the “long ball” was so good that players opted to cheat with chemistry as their true ability alone would not produce the highest return or largest pay days. In economic terms the old axiom of “what gets rewarded gets done” applies. Medicare has a long history of over-valuing certain types of patients, services, etc. while under-valuing others and thus, it is by its own rate and payment methodology, inducing a certain amount of “fraud”. When the rearview mirror test is applied or the hindsight test (that which is 20/20), its fairly easy to look at groupings of payments, diagnostic codes and outcomes and find structural flaws suggesting inappropriate or unnecessary care was provided. The remaining question then revolves around how to pre-examine each event or group of events to a level to assure that no inappropriate care or unnecessary care is rendered. Truth be told, I’m not sure that this question is completely solvable.
In some cases or circumstances notable of late, the word fraud is attached or overtly implied, to events that likely aren’t fraudulent; more indicative of gaming the system. For example, the Senate investigation of Amedysis, Gentiva, Almost Family, etc. was principally tied to an investigation completed by the Wall Street Journal involving therapy visits. At the core, the implication was that these companies “maxed” the number of visits to trigger the highest level of payment. Important to note is that the practice of “clustering” visits around the higher paying thresholds began when Congress created the higher paying threshold out of concern that “therapy” was being limited to home care patients. Of additional interest is the role MedPac played in this event, reporting average profit margins for these organizations approaching the upper teens to twenty percent range.
In the example above, the issue front and center is Medicare profit vs. appropriate level of profit (whatever level this is). With hindsight being 20/20, it is easy to see that perhaps, some therapy was over-provided or in some cases, some patients were selected intentionally because of their therapy or rehab potential. Did the agencies referenced intentionally seek to align their referral development practices and marketing approaches to attract certain patient types? Of course and doesn’t every business do the same? Personally, I have run organizations that did this and provided guidance to others on how to do this. The reality is that some patients are better paying than others and regardless of whether an organization is non-profit or for-profit, the goal of any business is to attract paying customers and preferably, the customers that pay the best. When the incentive is laid forth by Medicare that certain types of care and services come with higher rates of reimbursement, it is only logical that providers will seek to develop business models and systems that garner the highest rate of reimbursement. If unnecessary care was the sole issue of whether these agencies did wrong, I won’t attempt to defend them but alternatively offer the whole health care industry as an example of unnecessary care provided across the spectrum. By our nature and culture, we have come to believe that more is better. An analysis of “unnecessary” in any area from drugs to surgeries to diagnostic tests to hospital stays and physician visits, many of which are/were paid for by Medicare, would clearly show this to a be a systemic problem and as categorized by CMS/OIG and the Senate, fraud and violations of the FCA (False Claims Act).
There isn’t a segment of the post-acute industry that I follow that remains honestly non-participative with regard to Medicare billing impropriety. There also isn’t a segment that isn’t constantly lobbying Congress to continue to shovel more money into Medicare and generally, skewed toward certain categories, diagnoses or patient-types where allegations of fraud routinely arise. Recently, CMS announced a rebasing of RUGs rates for SNFs, primarily targeted at certain therapy categories. A huge cry of doom erupted from the industry and the industry tag alongs, principally therapy companies. I read for days, prognostications of SNF margins turning negative, stock prices falling, layoffs, etc. What was the real issue? Medicare is being used by the industry to routinely subsidize revenue shortfalls that occur via Medicaid. In reality, as Medicare is a bit payer in the SNF world (less than 20% of all days of care), the admission that Medicare is subsidizing other shortfalls is the same as stating that Medicare is overpaying SNFs. For CMS, the issue was about another “miss” in the ongoing game of trying to tie reimbursement to care needs to patient populations. The industry was, as has always been the case, one step ahead in moving its practices to where the money is. No different than the home health industry events, the SNF industry targeted certain types of patients and unquestionably, a portion of the therapy provided may fit the hind-sight definition of “unnecessary” either by level coded or visits actually provided. Stretching the diagnosis, seeking certain referrals, building relationships that are economically advantageous to various parties, etc., is as common in the SNF industry as it is in hospice, home health, and hospitals.
The latest hospice industry news event concerning Vitas and inappropriate referrals of non-terminal patients is indicative of a twist on an old theme, nothing more. While this instance is truly creative by definition, involving an insurer and a provider, both potentially culpable in a scheme to shift costs and maximize reimbursement, it still only rises to the level of “old news”. For years, the hospice industry has been rife with a similar dance played between hospices and SNFs. Caught or most recently on display doing this dance is Aseracare. In this dance, hospices circulate among SNFs with high Medicaid census and patient profiles marked by long-term dementia and debility; custodial care by definition. The hospice, in need of additional patients, tells the SNF that it can qualify many of these types of patients for the Medicare hospice benefit and in exchange, the SNF will continue to keep the Medicaid daily rate but the hospice will assume drug costs, supply costs, even DME costs plus augment the staffing. As a kicker, the transition of the patient to the care of the hospice provides some regulatory relief to the SNF as now the overall care of this patient shifts to the hospice and documentation, assessments, and other paperwork otherwise required by the SNF no longer apply. As expected, a win-win of sorts appears. The hospice gets daily rate from Medicare, the SNF the daily rate from Medicaid, the hospice census improves, the SNF census remains the same, etc. The real winner here however is the hospice as an SNF patient is fairly inexpensive to care for as the SNF provides much of the care infrastructure. Visits to SNF patients are typically fewer than a comparable home-bound/community patient and by the nature of many of the patients qualified in this scenario, the length of stay on hospice is considerably longer – a nice stable, revenue stream. Using the 20/20 hindsight view however, shows that a preponderance of these SNF patients don’t fit much of the Medicare hospice criteria and in the acid test category of likely terminal in six months or less, a plausible argument can’t be made.
In the quest for higher reimbursement in an environment facing Medicare spending minimization, control and cuts. behaviors and tactics become irrational and by their very nature, borderline or outright fraudulent. The most rampant that I see is upcoding or creating phantom diagnoses and need where none truly exists. The hospice illustration above is one such example. Others that are common include “stretch-rugging” by therapy companies and SNFs, discharging dually-eligible Medicare SNF patients to hospitals when the medical needs (and supposed costs) increase, and back-dating orders. In some cases, the activity is subtle such as SNFs that are willing to take below fee-schedule discounts for laboratory and radiology services for Medicare residents, even though doing so could lead to a Stark violation for the SNF. The whole chase is about trying to maximize the net revenue under Medicare, either by increasing the volume or minimizing the costs associated with caring for these patients.
Still, the question begs as to “why” this level of fraudulent or inappropriate activity persists and, in-spite of well published examples of providers getting caught. As I wrote earlier, a portion is due to the fundamental flaws inherent with Medicare, how it pays and the program benefit structure. Chalking it all up however, to Medicare while easy, is like solving half of a crossword puzzle and calling it done. In my follow-up post, I’ll provide a bit more clarity as to what I see, are the reasons “why”.
Post-Acute Outlook Post Debt Ceiling, Post Medicare Rate Adjustments, Etc.
OK, the title is a bit wordy and trust me, I could have included more “posts” but I think I got the point across. First, I’ll admit to having a crystal ball however, the picture I see is a bit like the first (and only) television set I remember having as a kid: Not in color, lines running vertically and horizontally, snow, and an antenna that required frequent manipulation and tin foil to get any kind of reception. And of course, there were only three channels available. The same today is true about my crystal ball on health policy and what to expect in the post-acute industry.
My crystal ball’s three channels are Medicare, Medicaid and the Economy. Reviewing each, here’s the programming I see for the fall lineup or if you prefer, the period post October 1 (fiscal year 2012) through early next year.
The Economy: The debt ceiling discussion and the actions taken by S&P and the Fed in the last couple of weeks are a reminder via a cold slap, of how mired in dysfunction Washington remains and how moribund the economy truly is. While technically not in a recession, the economy is not really growing either; a growth rate of less than 2% in GDP is like treading water. For unemployment to change, consumers to return and capital to re-enter the business investment side, GDP growth needs to be above 2% and ideally north of 4% for a sustained period. Unfortunately, in order for this to occur, fiscal policy in Washington needs to develop some semblance of coherency and consistency.
What I know from my economics training and background and my last twenty-five years plus in the healthcare industry boils down to some fairly simple concepts. These concepts are I believe, a solid framework for providers to use in terms of planning for the near future and even somewhat beyond.
- The U.S. debt level is fueled to a great degree by entitlement spending, less so by discretionary spending. If the prevailing wind is about debt reduction and balance in the federal budget (or getting closer to balance), two things must occur. First, spending constraint where spending primarily occurs, namely entitlements. Second, revenue increases in some fashion, namely taxes. The devil as we know it today, is how and where on both sides of the ledger (revenue and expenses). Spending reductions alone are insufficient, unless dramatic, to significantly lower the debt level or balance the budget; particularly in a period of near zero economic growth. Dramatic spending reductions are clearly unwise and potentially, deleterious to an industry sector (healthcare) that continues to provide steady employment. Similarly, for spending reductions on entitlements to truly have a positive impact and make sense, program reform must be at the forefront of “why” less spending is needed or warranted. Program reform, ala the health care reform bill which didn’t really reform Medicare or Medicaid but added new layers of entitlements, is far from the answer. For providers, there is no immediate or for that matter, longer-range future that doesn’t entail less spending on Medicare or Medicaid. As the only “trick” in Washington’s bag or the bags contained in the statehouses is rate cuts, anticipate and plan for the same.
- A lackluster, no growth economy with high unemployment levels fuels provider competition wars over paying patients. As fewer paying patients are available and/or fewer “good” paying patients are available, providers will compete for the same market share within and across the industry levels. What this means is that providers will seek to acquire market share within industry segments (home health, hospice, SNF, etc.) and across industry levels (hospitals seeking to maintain patient days versus referring to post-acute providers). The end result is more or similar levels of M&A activity, if capital remains available, and thus, consolidation that is driven primarily by market share motives.
- According to a recent healthcare expenditure outlook released by CMS, healthcare spending is projected to reach $4.6 trillion by the end of the decade, representing nearly 20% of GDP. The primary contributor to this projected level of growth is the Affordable Care Act, principally due to the expansion of Medicaid and the requirements for private insurance coverage (Medicaid growth of 20.3%). While CMS notes that Medicare spending may slow somewhat, this assumption is predicated upon the continuation of spending cuts and a 29.4% reduction in physician payment rates required under the current Sustainable Growth Rate (SGR) formula. Assuming, as has historically occurred, Congress evacuates the cuts called for under the SGR and as has been discussed, moves to a formula tying payment to the Medicare Economic Index, Medicare spending accelerates to a 6.6% growth rate (1.7% projected for 2012 with continuation of the SGR). Summarized, health spending is the two ton gorilla in the room and it will continue to have a heavy, significant influence on economic policy discussions at the federal level and beyond. Though I don’t agree with the recent rating action taken by S&P, it is impossible to ignore the consensus opinions of allof the rating agencies: Entitlement spending, namely driven by healthcare spending, is unsustainable at its present level with the present level of income support (taxation) and as long as the status quo remains fundamentally unchanged, the U.S. economy is not fundamentally stable.
- Current economic realities and the rating agencies actions and statements foreshadow a stormy, near term future for the healthcare industry. As is always the case, there will be winners and losers or more on-point, those more directly impacted and those less so. On the post-acute side, excluding reimbursement impacts, I’ve summarized my views on what I see in terms of economic impacts for the near term (below).
- The credit rating side will remain pessimistic for most of the industry “brick and mortar” providers. Moody’s, Fitch, et.al. will continue to have negative outlooks on CCRCs, SNFs, etc. primarily due to the economic realities of the housing market, investment markets, and reimbursement outlook. Within this group of brick and mortar providers, Assisted Living Facilities will fair the best as they are the least impacted by the housing market and for all intents and purposes, minimally impacted by reimbursement issues (save the providers that choose to play in the HCBS/Medicaid-waiver arena).
- The publicly traded companies (primarily SNFs but home health and LTACHs as well) will continue to see stock price suppression due to the unfavorable outlooks and credit downgrades provided by the rating agencies. This will occur regardless of the favorable earnings posted by some of the companies. Reimbursement trends (down) are the primary driver combined with the hard reality that Medicaid is in serious financial trouble, even more so going forward as enrollment jumps due to continued healthcare reform phase-in schedules.
- Capital market access will continue to be tight to inaccessible for some providers. Reimbursement, negative rating agency outlooks, lending/banking reform, above historic levels of failures/bankruptcies, etc. all continue and will remain as an overhang to the lending environment. Problems with potential continued stable to increasing funding levels at Fannie, HUD, etc. create additional credit negativity and tighter funding flow. Capital access, when available, will continue to have a credit premium attached, in-spite of low base rates. I expect to see continued development and demand for private equity participation.
- Given the above, financially driven mergers and acquisitions will remain somewhat higher as organizations seek to use the M&A arena to create financially stable partnerships and bigger or larger platforms from which to derive credit/capital access.
Medicare: The problems with Medicare are too deep and lengthy to rehash here and thus, I’ll move to brevity. Medicare is, as I have written before, horribly inefficient, bureaucratic, and inadequately funded to remain or be, viable. As a result, only two real scenarios exist today: Cut outlays or increase revenues. Arguably, a third that involves portions of each scenario is the most probable solution. Real reform is light-years away as the current and forseeable political future foretells no scenario that includes a Ryanesque option (Paul Ryan plan from the Republican Congressional Budget and/or Roadmap for America). Viewed in this light, the Medicare outlook for post-acute providers is as follows.
- For SNFs and Home Health Agencies, reimbursement levels are on the decline. The OIG for CMS and MedPac have each weighed-in that providers are being overpaid. Profit margins as a result of Medicare payments or attributable to Medicare, are deemed too high (mid to upper teens) and as such, the prevailing wind is payment or outlay reductions. The bright-side if such exists, and as I have written before, this “cutting” trend will impact some providers far more than others. The providers that have relied heavily and primarily on certain patient types for reimbursement gains will be more negatively impacted than providers with a more “balanced” book – a more diverse clinical case mix. The movement is toward a more balanced level and thus lower level, of reimbursement theoretically closer aligned with the actual clinical care needs of patients. Providers with more diverse revenue streams and more overall case-mix balance will not be as adversely impacted although, the Medicare revenue stream will be lower or less profitable.
- Hospice has remained relatively unharmed, principally due to its lower overall outlay from the program. It remains a less-costly level of care than other institutional alternatives. A note of caution here is important. While rates have not been cut, program reform is occurring on the fringes and I suspect a wholesale re-design of the Medicare Hospice benefit is forthcoming. In such a fashion, payment reform rather than rate reform or reduction will occur. The obvious trend is to restructure payments away from a reward for lengthier stays and to require more precise determinations of terminality, tied to a tighter or imminent expectation of death. OIG and MedPac have issued a number of papers and memos regarding the relationships between Hospice and SNFs that correlate to longer stays for certain diagnoses. Summarized, payment reductions via rate are less of an issue but utilization reform is forthcoming via additional regulation designed to reduce overall payments to Hospices or as CMS would say, to more closely align payments to the real necessity of care for qualified, terminally ill patients. Without question, the largest impact (negative) going forward will be on hospices that have sizable revenue flows tied to nursing home patients.
- LTACHs are in a similar reimbursement boat as hospice; small overall outlay within the program and for the past few years, minimal expenditure growth. The industry is from a cost perspective, fundamentally flat. What will be interesting to watch is whether under certain aspects of healthcare reform, this niche’ takes on a growth spurt. Bundled payments, ACOs (Accountable Care Organizations), and shifts in SNF reimbursement away from higher acuity, rehab patients may lead toward more utilization of the LTACH product. This being said, the prevailing Medicare reimbursement profile is fundamentally flat. Given a bit more creativity on the part of the LTACH provider community, this segment may be poised for some growth, although not directly via increasing payments.
- The most uncertainty lies on the Part B provider side, particularly providers that are reimbursement “connected” to the Physician Fee Schedule (therapy for example). As of today, the required change to the fee schedule as a result of the Sustainable Growth Rate formula is a fee cut of 29.4%. It is quite possible, due to the current negative or flat growth trajectory of the economy, and sans any change in the law, for fees to be cut again in 2013, barring Congressional action. Most acutely impacted in this scenario are physicians and predominantly, primary care physicians. I have yet to see a Congress that fails to intercede and repair cuts this draconian but the political times and the budget deficit debates are markedly different than during any prior period. Critical to whether this cut or some level less than this is implemented is the issue of access, already a hot topic for physicians. Physicians, particularly primary care specialists, are already in short-supply nationally, woefully short in certain markets. If cuts of this magnitude or perhaps any magnitude roll forward, I suspect many physicians will curtail or close their practice to new Medicare patients. On the other side represented by non-physician providers, Part B cuts of this magnitude will no doubt limit service and access. Fixing the formula and the law has been difficult for Congress as the dollar implications are substantial. I foresee another round of patches, etc., occurring close to the “cut” date, especially since 2012 is an election year.
Medicaid: For as many reasons as Medicare is a mess, Medicaid is as well, though magnified by a factor of two or more. Medicaid’s biggest problem now is rapid growing enrollment, primarily due to high unemployment and upcoming federal eligibility changes mandated via the Accountable Care Act (healthcare reform). Given Medicaid’s current funding structure, this issue poses huge problems in flat to negative growth economies. States simply due not have the revenue to create a higher matching threshold or level, necessary to achieve more federal dollars. In July, the enhanced federal match provided via the Recovery Act (stimulus) sunsetted leaving states with huge structural deficits and the prospect of deficit growth due to increasing enrollment. In virtually every state, rate cuts have been discussed and in half-again as many, implemented. States continue to move to the federal government seeking relief from required or imputed service provision requirements and/or relief from eligibility requirements (waivers). The inherent difficulty with balancing Medicaid funding is that the same is directly tied to stable to growing state revenues and a clear picture of population risk or need. Changing (increasing) populations often present adverse-risk scenarios, creating higher than normative utilization. For obvious reasons, lower than market reimbursement levels, access is a big issue. Not all providers willingly and openly desire Medicaid patients and those that do are not on the increase. Without additional funding assistance at a level beyond what is called for in the Accountable Care Act, regulatory relief and an improving economy, the reimbursement prospects under Medicaid are all bleak.
- In the post-acute environment, the biggest impact of this continued ugly Medicaid scenario will fall directly on SNFs. Matching prospective or real Medicaid cuts with Medicare cuts forthcoming is a true “negative” Perfect Storm. For most SNFs, Medicaid is the largest payer source and until recent, Medicare was used as a make-up funding source for Medicaid reimbursement shortfalls. Adding fuel to an already smoldering fire, the suppressed earnings available to seniors, no growth in Social Security payments, and a stock market that presently produces only a flat return trajectory limits the pool of private paying and privately insured patients. In short, there is no additional room on the revenue side to make-up an SNFs Medicaid losses. For SNFs, only the few that have limited leverage, high occupancy, an extremely balanced payer mix, and stable staffing will weather the Medicaid near term future; a future of no rate increases or likely cuts.
- While not a huge segment of the post-acute environment, HCBs providers will feel the Medicaid pinch as well. As a result of needing to reign in Medicaid spending, states are rapidly curtailing their funding and payment levels for HCBs programs. While most states still claim that HCBs expansion would help soften their Medicaid deficit, states that bit a big bullet in this arena early on (California for one), now realize that waiver programs produce massive new levels of beneficiaries who want and need access to community support services. SNF access was already somewhat limited as the industry has truly shrunk but the demand for services in this growing eligibility pool has expanded. Funding these services is becoming a real problem for states and as such, support payments will remain flat, decline and program growth will be capped.
- Home Health will also feel a bite from declining Medicaid funding although its Medicaid utilization levels are modest at best. For Home Health, Medicare is the big dog and Medicaid a minor element. Staffing costs are on the rise for Home Health as the competition for home health aides in many markets is brutal or getting rough. Competition, even in a high unemployment environment, for certain categories of employees, raises wages and benefit costs. Staffing is the largest expense for a home health agency and as such, a scenario with rising employment costs and flat to declining reimbursement negatively impacts margins. I don’t see this scenario changing any time soon.
Concluding, this may be one of my most depressing posts, if for no other reason than the current external view is dreary and nothing foreshadows improving weather. For brick and mortar providers, capital access is critical, especially for SNFs who have as a profile, some of the oldest physical plants. SNFs are capital-intensive operations and without an ability to fluidly and reasonably, access modest cost funds, deferred maintenance (already high) will increase. With so much revenue tied to reimbursement and a reimbursement outlook that is negative, it is unlikely that capital will flood back to the post-acute industry. Critically important to the viability of this sector is an improving economy combined with regulatory reform that, if reimbursement remains flat, allows providers to become truly more efficient. In short, increased program revenues under Medicare and Medicaid due to economic growth, will ease a lot of the immediate crunch and perhaps, buy sufficient time for absolutely critical, health policy reform.
OIG on Hospice: Restructure Hospice Payments for SNF Residents
This past week, the OIG released a report that represents a more definitive study of hospice payments and utilization trends under Medicare. The report is effectively a follow-up to recommendations made in MedPac’s annual report(s) to Congress. The report provides a review of OIG’s analysis of the growth of Medicare covered hospice patients over the period 2005 – 2009, specifically as such growth relates to the provision of Hospice services within SNFs. For the last three to four years, MedPac and to a lesser extent OIG, have commented about the rapid growth of hospice utilization under the Medicare benefit and the corollary relationship between this growth and SNFs, particularly as the same relates to for-profit hospice organizations. For more on MedPac’s report to Congress and their recommendations/analysis regarding Hospice, see my related post on this site at http://wp.me/ptUlY-8e .
Per OIG, Medicare spending for hospice services provided to SNF residents increased 69% between 2005 and 2009. In total dollars, the amount grew from $2.55 billion to $4.31 billion. During this period, the number of hospice beneficiaries residing in SNFs grew by 40%. Not surprising, during this same period the total number of hospices participating in Medicare also grew; the growth dominated by for-profit organizations. According to the OIG, hospices organized for-profit received higher levels of reimbursement on average (29%) compared to non-profit and governmental operated hospices.
Specifically related to hospice services provided to SNF residents, 8% or 263 hospices had two-thirds of their cases comprised of SNF residents. Of this group of 263, 72% were or are, for-profit. In total, 56% of all hospices participating in Medicare are for-profit. Comparing reimbursement or payments and utilization, the group that incurred two-thirds of their cases via SNFs was paid more per beneficiary ($3,182) and the average length-of-stay in “benefit” was three weeks longer than the median average length of stay across the industry.
| Table 1: Medicare Hospice Care from 2005 to 2009: Growth in Spending and in Number of Beneficiaries | |||||
| 2005 | 2009 | Percentage Increase | |||
| Spending on hospice care in nursing facilities | $2.55 billion | $4.31 billion | 69% | ||
| Spending on hospice care in all settings | $7.92 billion | $12.08 billion | 53% | ||
| Number of hospice beneficiaries in nursing facilities | 240,000 | 337,000 | 40% | ||
| Number of hospice beneficiaries in all settings | 871,000 | 1,085,000 | 25% | ||
| Source: OIG analysis of CMS data, 2010; and OIG,Medicare Hospice Care: A Comparison of Beneficiaries in Nursing Facilities and Beneficiaries in Other Settings, OEI-02-06-00220, December 2007. | |||||
As I have written before, the dominant profile of SNF residents enrolled in hospice includes Medicaid as the primary payer source, a primary diagnosis for SNF residency of Alzheimer’s disease or some other form of dementia or mental disorder, and the SNF in which they (the residents) reside has a payer mix that is at least 42% Medicaid. Additionally, the SNF resident has resided in the facility for a period of time (months) prior to enrollment within the hospice benefit. None of this information is new or should I say “news”. The SNF industry has quickly learned that transferring a certain liability for the cost of care of a Medicaid resident (drugs, certain supplies, some staffing) to a hospice that receives a routine hospice benefit under Medicare is financially advantageous, particularly since Medicaid continues to pay for the room and board costs of the SNF. In fact, the vast majority of state plans do not coordinate benefits with the Medicare Hospice benefit, leaving the facility to collect the full Medicaid rate for the resident’s stay while transferring an increment of care costs to the Hospice. Clearly, this niche is advantageous financially for the Hospice and the SNF. The Hospice, given the infrastructure of caregivers and other on-site SNF staff, can minimize its visits (substantially less in number than provided to a typical home-bound patient), effectively increasing its marginal profitability. The SNF transfers certain costs to the Hospice, now paid as part of the Hospice benefit while still receiving the total amount of the Medicaid payment. While I won’t say this makes Medicaid a profitable payer, it certainly increases the marginal revenue contribution from a group of now, hospice covered residents. As the OIG and MedPac have observed, the SNF resident hospice patient tends to be a patient with a terminal condition but arguably, one that is not necessarily imminent and/or in some cases, even clinically supported. The end or net result is a patient profile that stays longer (covered) under the Hospice benefit.
Concluding within their report, the OIG makes two recommendations that on their face, don’t vary much from recommendations made by MedPac. Their first recommendation is to monitor the activities of hospices with a high percentage of cases occurring in SNFs. Their second recommendation is for CMS to alter or lessen, the level of reimbursement paid to a hospice for care provided to an SNF resident. The report contains no recommendation of “how much” less. MedPac in comparison has recommended that the Hospice benefit be scaled for SNF residents – higher on admission, less in the middle term of the stay, and higher again close or precedent to death. For MedPac, this method more closely reflects the resources used or costs incurred by a hospice during a patient’s length of stay.
As I have indicated, this information is not new nor are the concluding recommendations. The Medicare Hospice benefit is dated and not reflective of how terminal care occurs and/or should occur. The system is ripe for fraud as CMS has not taken its time to scrutinize claims or the validity thereof, particularly for diagnoses that traditionally do not correlate to quick or timely death. All too many for-profit, non-hospital aligned hospices have realized that sans the SNF resident market, the actual hospice market is fairly limited and not sufficiently deep to support the current number of agencies. In other words, a hospice organized for-profit would likely have a difficult time sustaining its margins and building a sufficient base of business without SNF contracts. Given this reality, and the reality that SNFs with large Medicaid payer percentages and long-term stays among its residents also benefit via a favorable hospice relationship, the market reality becomes the same as concluded by the OIG. Changing this paradigm won’t occur until three core elements of reform pertaining to the Medicare Hospice benefit occur. First, refined clarity of diagnosis appropriateness and stronger requirements on re-certification for additional benefit periods. There exists sufficient clinical information to create clarity, even for end-stage Alzheimer’s/Dementia diagnoses. Second, payment changes that take into account coordinated or bundled payments for Medicaid SNF and private-pay residents. Neither the SNF or the Hospice should benefit disproportionately when a patient is on hospice. Third, requirements of disclosure for all hospice/SNF relationships and contracts and requirements that no one hospice may provide exclusive services to an SNF. Too many of the most egregious situations I have encountered occur when one hospice has entered into multiple SNF contracts, dominating the market and creating blatant “sweetheart” relationships. Additionally, CMS must take proactive measures to perform timely claim reviews of SNF residents receiving hospice services – for all diagnoses – particularly involving disproportionate case-mix hospice providers (hospices with large number of SNF residents enrolled with certain qualifying diagnoses such as dementia, failure to thrive, and Alzheimer’s).
Medicare SNF Cuts: Fact, Fiction, Probability
In early May, CMS released its proposed rule for FY 2012 concerning Medicare PPS reimbursement for SNFs. As most followers of the industry from investors, to operators to developers know by now, CMS dropped a “bomb” to the industry indicating bluntly, a warning of a parity adjustment (reimbursement or payment reduction) of 11.3% or $3.94 billion. In typical convoluted CMS fashion, the logic behind this foreboding news is scattered; an analysis of the agency’s inability to adequately anticipate provider behavior, utilization patterns, and to appropriately create a reimbursement mechanism that ties the cost of care required by current SNF patients with the costs and delivery systems necessary to provide the care.
Initially, the interpretation from many inside the industry was that CMS was overreacting, using only one-quarter’s worth of claims data to substantiate a “sky is falling” conclusion. More recently, six month’s worth of claims data became available and analysis proved the trend correct and even a shade worse or better stated, more prevalent than originally assumed. In short, the implementation of MDS 3.0 and RUGs IV missed the budget mark (budget or expenditure neutral) by $2.1 billion or 16%.
In the last week to ten days, the OIG (Office of Inspector General) for CMS stepped into the debate, stating its opinion that the overpayments must be stopped immediately. Interpreting the OIG’s qualification of “immediately”, the timeframe at issue is next fiscal year. In essence, the core of the problem continues to be the structural flaws within the RUGs system predominantly, that disproportionately pays more for rehabilitation therapy than for other primary care modalities. A major intent of CMS during the switch from RUGs III to IV was a reallocation of the incentives (higher payments) from therapy to other resident care requirements. Suffice to state, the methodology failed. Below is a simple illustration of how on a pure rate basis, the RUGs III to IV therapy categories compare.
| Table 1: Average Amount That Medicare Pays SNFs per Diem for Each Level of Therapy, FYs 2010 and 2011 | ||||
| Level of Therapy | Number of Therapy Minutes Provided During Assessment Period | Average per Diem Payment FY 2010 | Average per Diem Payment FY 2011 | Percentage Increase From FY 2010 toFY 2011 |
| Low | 45 to 149 | $288 | $430 | 49% |
| Medium | 150 to 324 | $369 | $488 | 32% |
| High | 325 to 499 | $364 | $532 | 46% |
| Very high | 500 to 719 | $418 | $594 | 42% |
| Ultra high | 720 or more | $528 | $699 | 32% |
| Source: OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011. See 74 Fed. Reg. 40288, 40298–40299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895 (Jul. 22, 2010). | ||||
Reviewed on-the-face, it is logical to see how CMS could miss the targeted expenditure mark by the margin it has, even in-spite of the “methodology” changes that occurred in the conversion from 2.0 to 3.0 and RUGs III to IV. Providers, being logical creatures of certain habits, moved accordingly to grab the payments at the highest attainable levels or in short, fulfilled the economic axiom of, “what gets rewarded (paid for) gets done”. The expectation on the part of CMS that utilization trends would fall-off from the higher paying therapy categories, necessitating a higher re-balanced rate to negate a revenue “shock” to the SNFs was poorly thought through.
Quickly reviewing “what” occurred to produce such a variance from assumption to actual is easy. Getting to the core takes a bit more thought and digging. In summary fashion; CMS assumed that by restructuring how therapy minutes were calculated for concurrent therapy (therapy provided to two individuals) from a two-equals one basis to an equal half, would reduce the ability of providers to meet the higher per minute category qualifications, necessitating more one to one therapy sessions (the previous concurrent therapy rules allowed providers to have two people in the same therapy session with the total session time allocated to both participants equally). Similarly, CMS assumed that ending the look-back provision to establish reference dates and care requirements would more accurately stage the resident’s acuity and care needs to the point of admission (or proximally forward from admission) to the SNF. Additional tightening of the extensive services qualifier rules would also, as assumed, reduce higher RUG scores and thus, payments. Of these changes and assumptions, only the look-back period changes combined with the changes in qualification for extensive services provided any material classification changes (lower payments) though such changes were far less in total dollars than the dollar increase CMS imputed on the corresponding RUGs III to RUGs IV therapy payments. Providers however, merely switched to the remaining “open ground”, providing more therapy on an individual basis and most noticeably, on a group basis. On a group basis, minutes are counted collectively, not split in equal parts among the participants – a provision CMS did not change from RUGs III to RUGs IV. While the modifications made to the extensive services qualifier and the look-back period provision did impact providers, CMS completely misunderstood the application and prevalence within the provider community of these two provisions under RUGs III and as played-out, found that providers could still code residents into higher payment groups/categories in spite of the changes.
To understand what might happen next, one needs to look at how this mess occurred. As I’ve typically found, the answer lies in both camps; providers and CMS. In my recent work, its clear that many providers don’t understand the transition from RUGs III to RUGs IV and as I have looked at “oodles” of Medicare claims, I dare say a large number are still frought with “up-coding” and questionable therapy-minute counting practices. This is not to say that the whole of the industry has behaved in this fashion but arguably, and CMS understands this as do both major trade associations, providers have not totally changed their business models to reflect the changes in payment systems. One needs only to look at how claims trended under RUGs III and how they now are trending under RUGs IV. The trend is too consistent to support an assumption of SNFs; a) staffing substantially more therapy personnel to capture the minute requirements via individual treatment or, b) SNFs moved a sizable share of their Medicare case-load into group therapy. The latter, while I’m certain it has occurred on a broad basis as the OIG report suggests, is problematic from a care delivery perspective for a large range of diagnoses that truly require individual therapy sessions.
CMS continues to remain fundamentally inept at developing reimbursement systems that provide adequate payment for the care and services required by SNF residents. I have yet to see, across my 25 years in the industry, any period or any system devised by CMS that didn’t under-support or over-support, one type or category of patient versus others. It is also illogical that CMS cannot develop the audit tools and claims management infrastructure that both educates providers and pre-emptively kicks-back claims clearly evidencing up-coding. I am consistently amazed at “what” gets paid and for how long. In short, CMS is apparently willing to consistently miss the mark, make wholesale adjustments and reallocation of dollars, only to over-correct past inconsistencies while producing new ones. Such will not doubt occur with this latest blunder.
While I won’t claim to have a crystal ball in terms of forecasting “what happens” next, experience and ongoing dialogue with individuals on Capital Hill and within CMS gives me some decent insights. With debt ceiling/deficit reduction talks mired in politics, it is unlikely any substantial cuts to entitlement spending are forthcoming. Senate Democrats and the President are sufficiently dug-in on cutting Medicare spending by any measurable amount thus the target on this issue (Medicare SNF spending) has moved away from the current political fracas. The remaining Washington impetus for cutting SNF reimbursement resides within CMS. In spite of the OIG’s report, enacting cuts of the magnitude suggested is a political issue. CMS can propose all the spending cuts its desires but Congress has the final say. Rarely if ever, although given today’s climate an exception may be possible, has Congress sustained reimbursement cuts of this magnitude. Synthesized, my view of what happens next, based on what I know to date, is:
- Providers and their trade association are willing to capitulate to a modest adjustment in the therapy categories. This symbolic give-back will play well politically. Net of a market-basket/inflation update, cuts of 2% to 4% are possible in a “cut scenario”.
- In a scenario that involves no real cuts, rates will be flat. CMS will institute additional refinements and perhaps, even re-calibrate or fine tune payments by RUGs category, moving dollars within the RUGs system, without reducing payments. In this scenario, the attempt on the part of CMS to is to “patch the potholes” and let the system itself reduce payments via tightening the requirements and re-allocating dollars within the RUGs categories.
- A most probable scenario involves, as is typical, a bit of both. CMS will cut the therapy rates using some language about re-basing. At the same time, a series of corrections will be made regarding the counting of minutes for group therapy, assessment windows, etc. Overall, payments to SNFs across all RUGs IV categories will be flat or targeted as a reduction equaling 2-4%. The pull-back on the therapy RUGs rates could be as steep as 8% to 10%. Even at this level, the remaining rate will be higher than the former RUG III rate.
About: Reg’s Blog: Post-Acute, Senior Healthcare, and General Healthcare Issues
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