Over the last six months or so, I’ve written a number of articles on the issue of SNFs, therapy contracts/contractors, and recent fraud settlements. I’ve also given a few presentations on the same subject, covering how fraud occurs, the relationships between therapy contractors, SNFs and Medicare, and the keys to avoiding fraud. A reader question based on this subject area is the genesis (the answer is anyway) of this post. The questioned shortened and paraphrased is;
“If we (the SNF) conduct an audit of our therapy contractor and our Medicare claims as you suggest and we find abnormalities that appear to be fraudulent claims, what do we do next? We know we have to correct the practices that allowed the claims to happen but is there something else we need to do?”
Not only is this an excellent question given the subject area, the answer or outcome is likely the reason so many providers don’t or won’t audit their therapy contractors and Medicare claims (afraid of what they might find). The answer to the question is YES, there is something else to do and it is a federal requirement if a provider wishes to potentially avoid Civil Monetary Penalties and other remedies. This key step is known as Self Disclosure.
Starting at the beginning: If the results of the “audit” determine that Medicare was billed inappropriately, the provider is in potential violation of the False Claims Act. The False Claims Act describes violations as ‘any entity or person that causes the federal government to make payments for goods or services that are a) not provided b) provided contrary to federal standards or law or, c) provided at a level or quality different than what the claim was submitted for (summarized)’. For Medicare, providers are in violation of the False Claims Act if bills are/were submitted to Medicare (and paid) for care that was inappropriate, unnecessary, falsely misrepresented (upcoding, documentation etc.) or not provided. Assuming, as the questioner poses, that the audit found abnormalities (improper bills and payments) to Medicare (Parts A, B, or C) for any of these reasons, a False Claims Act violation (liability) has been identified. The provider has obligations as a result, under federal law.
The “obligation” once the activity is discovered is to self report. The OIG maintains a Self Disclosure Protocol policy that can be accessed here ( http://oig.hhs.gov/compliance/self-disclosure-info/files/Provider-Self-Disclosure-Protocol.pdf ). Self Disclosure is a methodology that providers can use to potentially avoid Civil Monetary Damages, other remedies and extensive legal costs. Self Disclosure however, cannot be used to mitigate criminal penalties if the activity that is part of the Medicare False Claims violation was/is criminal. Self Disclosure also is not relevant for overpayments. Overpayment issues are handled via the Fiscal Intermediary directly.
Per the OIG Self Disclosure Protocol:
“In 1998, the Office of Inspector General (OIG) of the United States Department of Health and Human Services (HHS) published the Provider Self-Disclosure Protocol (the SDP) at 63 Fed Reg. 58399 (October 30, 1998) to establish a process for health care providers to voluntarily identify, disclose, and resolve instances of potential fraud involving the Federal health care programs (as defined in section 1128B(f) of the Social Security Act (the Act), 42 U.S.C. 1320a–7b(f)). The SDP provides guidance on how to investigate this conduct, quantify damages, and report the conduct to OIG to resolve the provider’s liability under OIG’s civil monetary penalty (CMP) authorities.”
Below are some key points providers need to know prior to and in connection with, a self disclosure process. Again, I encourage all providers that are conducting a billing audit or considering a billing audit, to access the PDF from this post and review the OIG Self Disclosure Protocol.
- A current regulatory process or audit from Medicare (or a contractor such as a ZPIC audit) does not mean that the provider cannot self disclose, provided the disclosure is in good faith.
- Further investigations and reviews are part of the process and providers need to be aware that the OIG will direct the provider’s investigative process as part of the self disclosure. In other words, the audit the provider conducted which may have identified the false claims is not the end nor will it suffice to resolve the matter once disclosed.
- Providers that wish to self disclose need legal counsel as the initial disclosure requires a succinct identification of the legal violations applicable and the scope of the activity and dollar amounts (potential) involved.
- Self disclosure should only be made after corrective action has occurred. The disclosure does not suffice as a remedy for conduct going forward nor can it absolve liability in scope that predates the disclosure or the period disclosed (see the point prior).
- Providers need to be aware that this process is not quick nor does it alleviate or mitigate any requirement for repayment of improper claims. Additionally, providers need to recognize that resolution will require mitigation steps including potential agreement to a compliance program/plan and commitment to additional monitoring/auditing, depending on the scope of the violations disclosed.
I encourage providers to read the Protocol and to pay particular attention to 5 – 9. While I know the information may seem daunting and discouraging, don’t use this post or the information in the Protocol as a reason to not conduct a Medicare billing/claims audit and/or to not report, if violations are found. I assure you, having worked extensively with providers caught by the OIG, DOJ and/or in a Qui Tam action, prevention and self disclosure, while onerous is far better and cheaper than what occurs if the violations are discovered federally.
Yesterday, the Speaker of the House (John Boehner) announced that a compromise is forthcoming to alleviate, for one year, the pending 24% payment reduction to the Physician Fee Schedule arising out of the current SGR formula. Ten days or so ago I wrote a post regarding a House bill that repealed the SGR but contained a “poison-pill” provision assuring its death in the Senate ( http://wp.me/ptUlY-gm ). As is the common methodology in Congress today, this initiative is a “patch”; another extension of the current status quo, delaying any SGR implications for one year. Alas, while the SGR demands fixing, permanently, no traction is available among the parties to resolve the issue.
What the compromise does and doesn’t do is as much the center of debate as any efforts to replace the SGR with a more permanent formula. In summary, the compromise;
- Staves off the 24% cut but doesn’t restore any cuts related to sequestration.
- It delays the implementation for hospitals of the 2 midnight rule for another six months. The 2 midnight rule essentially reduces Medicare payments to hospitals for short in-patient stays. It requires admitting physicians to have justification for the inpatient stay and if the same is lacking, the stay could be deemed (by RAC auditors) outpatient observation and thus, paid under Part B at a lower rate. The Bill would delay RAC auditors ability to review such stays until March of 2015 and give CMS authority in the interim and beyond, the ability to probe and educate but not re-classify stays.
- It extends the implementation of ICD-10 for one more year.
- It extends certain programs that provide additional funding for rural hospitals.
While no one wins under these compromises, the Patch is likely to pass both houses quickly, viewed as a better alternative than the SGR cuts. For post-acute providers, this is good enough news as the therapy fee schedule was subject to the same 24% reduction.
Interesting to note is that while the Bill extends the implementation of the 2 midnight rule, it doesn’t address the backlog of Administrative Appeals that continues to mount due to the Medicare RAC initiative. This backlog is enormous and growing and it is the sole source initially, for providers to appeal RAC decisions. I know of multiple providers today in the appeal queue waiting for a review of what appears to be, many erroneous determinations and shabby reviews of claims. More on this in another post – later.
As luck would have it, work interfered with my plans to have all of the industry outlooks for this year complete and published by February 1. Good news: Ground work is done now I just need to get to the writing and editing on a consistent basis. With any luck and a bit of fortitude, I’ll have these all done by Valentine’s Day.
Below is my and my firm’s summary of what SNFs can expect in 2013 and into FY 2014 (governmental FY starts 10/1/13 for 2014).
Summary Comments: From a valuation stand point, SNFs are still seeing strong (low) cap rates and solid pricing per bed, as reflected in the M&A arena. This seems a bit incongruous given the strain on revenues current and forecasted under Medicare and Medicaid. Additionally, we are seeing upward movement in variable expenses on a PPD basis as food inflation and some wage pressure is creeping into operating costs. Likewise, we think overall comp inflation is forthcoming if for no other reason that the continued phase-in of the PPACA and its provisions impacting employer sponsored health insurance plans. It will be interesting to see how larger providers and provider groups respond over the next six months or so. As of today, we don’t have a clear read on how providers will handle their health plans (keep, drop, alter, etc.). Literally, the “bag” is muddled and mixed. On the positive side, we are seeing some interesting trends among larger provider organizations and larger SNFs toward enhanced quality improvement foci and activities around bundled payment demonstrations, etc. Those that have pad attention seem to have set a forward course to be engaged in the broader “new world” order in healthcare, focusing on their care transitions, their referral relationships (upward and downward), their unnecessary drugs, etc., developing a more data driven, outcome approach to managing their operations and thus, improving their quality.
Medicare Part A: The outlook summary on Medicare, while it could cover multiple pages, summarized is BLEAK – at least as far as rate is concerned. The good news is that Medicare will remain a far superior revenue source than alternatives such as Medicaid. The bad news is that Medicare as an overall revenue source and sustainer of margin is weakening. The threats and realities are obvious. First, Sequestration cuts are not off the table and assuming, which seems the prevailing wind, Congress’ content to leave all but Defense cuts on the table, SNFs will see a rate decrease in 2013 and an outlay reduction over the upcoming 10 years of $65 billion. Should this scenario play out, SNFs will see a case-mix adjusted Medicare revenue PPD reduction averaging 2%.
Digging deeper, a number of negative Medicare policy issues remain beyond the looming spectacle of Sequestration. First, the current Congress is perhaps the most passive when it comes to doing anything and more so, digging direct into programmatic elements within Medicare. This means that it its hard to see Congress stepping in or up to restore spending reductions for a programmatic element such as SNFs. Couple the political reality of the times with the fiscal realities of Medicare and entitlement spending and the prevailing and crystal-clear trend is “less” not “more”. Medpac has called for complete renovation of the SNF PPS and rebasing of rates, stating that SNFs are overpaid and in many cases, abusing the current therapy RUGs to garner higher rates. Industry arguments concerning the need for higher Medicare revenues to offset Medicaid losses are de facto, played out on the Hill.
Bottom-line: Consesus in our group is for rates in 2013 and then into federal FY 2014 to go down by 2.5%, case-mix adjusted average (meaning more impact felt for higher therapy case-mix and less for a more balanced case-mix on a PPD basis).
Medicare Part B: This analysis is simpler than Part A. The industry dodged one bullet in December as Congress passed the current sustaining legislation that remedied the immediacy of the Fiscal Cliff, applying another twelve month patch to SGR formula/physician fee-schedule, evaporating the pending cuts that apply to any Part B service connected to the fee schedule (not just physicians). That is the good news. The bad news is that CMS continued the MMR process for cap exceptions, left the caps intact and changed, effective in June the MPPR (Multi Procedure Payment Reduction) factor from 25% (applicable to SNFs) to 50%. Again, based on an SNFs utilization of Part B and the types of therapy provided to its caseload, the revenue impact can be fairly steep. On average, we calculate a 7% reduction but for some scenarios that we ran, the reduction can be double digit. Providers will need to watch scheduling of multiple therapies and treatment patterns closely and make adjustments where possible, to mitigate the revenue reduction.
Compliance: SNFs will continue to face increasing compliance and survey challenges with respect to billing and care delivery. Without question, the industry remains tightly regulated and unfortunately, the regulatory process as convened and managed through various state governments remains fraught with inconsistency; inconsistency in application of various codes, inconsistency in interpreations and inconsistency in enforcement. As a major practice area within my firm is dedicated to compliance, we see challenges and survey/certification inconsistency daily. We also see providers who somewhat impose their own peril by failing to stay current and to adopt a “clear-headed” approach to the industry realities. Below are the compliance challenges and issues that we see, split between billing and survey/certification, for 2013.
- Billing: Medpac and the DHHS OIG both have publicly stated that SNFs and their Medicare billing practices demonstrate consistent over-billing in relationship to care provided or required by certain types of patients, primarily those admitted for rehabilitative therapy. By estimates, the total amount is $1.5 billion of unjustified billing (over-billing). Stopping short of labeling the findings systemic fraud, DHHS recommended increased audit activity, targeted fraud investigations where the practices seemed consistent within certain organizations, and ultimately, changing the reimbursement mechanisms for therapy RUGs. The latter in our estimation, will take time but we believe that CMS will continue to move toward re-basing and re-calibrating a modified PPS system for SNFs. The take-away here is SNFs beware, especially of your case-mix. We are consistently advising, and have for years, that SNFs need to pay close attention to their Medicare revenue PPD and their billed RUGs distribution. If there is a skewed trend toward too high of utilization of upper RUG therapy categories, something is wrong. Benchmark the facility’s distribution and revenue PPD against the region and the locale (easy to do). If the facility’s distribution is out of kilter, investigation is required. We also recommend periodic external audits of facility billing practices, matching RUGs billed to the MDS to the documentation of care delivered. The over-billing, over-utilization of therapy RUGs is a targeted focal area within the OIG workplan and SNFs need to be acutely aware of the False Claims Act consequences for over-billing.
- Survey/Certification:In addition to the enormity of survey/certification dimensions that already exist for SNFs, some new twists are in-play. The first that providers need to pay close attention to is unneccessary drugs and particularly, psychoactive medications. Surveyors are getting directed guidance from CMS to crack-down on the amount and frequency of psychoactive medication use in the SNF population as well as the misuse of medications with Black Box warnings/medications used for inappropriate therapeutic reasons, not intended by the FDA approved usage guidelines. For most SNFs, this is a big risk area. With the recent flu outbreak nationwide, we are seeing enhanced survey activity focused on infection control and immunizations. Again, this is weak area for many SNFs. Even facilities with solid immunization programs risk peril if they are not using proper isolation, precaution and surveillance practices. We have seen of late, some significant citations (IJ, G and higher levels) arise from inadequate infection control programs, even where immunization efforts were good. Finally, while we aren’t yet seeing much directed enforcement or survey activity on facility Quality Assurance programs, this year (FY 2013/2014) comes with new requirements for facilities to have in place, a QAPI (Quality Assurance Performance Improvement) process. We consistently find that facilities are unaware of this requirement and worse, haven’t yet heard about QAPI. Note: Readers who want more information on QAPI, e-mail me (contact is on the author page) or comment to this post, providing me with a current e-mail address. I have resources that I can forward to you.
Medicaid: Little in terms of reimbursement changes lies ahead for the industry, save a consistent trend of states converting their Medicaid programs to managed care. In states where this is occurring, providers face less rate challenges in terms of rate reductions more, programmatic structural changes in terms of billing requirements to MCOs, enrollment issues for their MA residents, and new rules regarding prior authorizations, continued authorizations and formulary changes for prescriptions. This presents a unique hodge-podge of similar but different issues state to state. Each state has nuanced differences when they implement managed Medicaid and each state has unique networks and in some cases, different MCOs. From a strict financial outlook, Medicaid remains structurally problematic and will for the next years. State budgets are far from flush and with the loss of enhanced FMAP last year, most states are far from capable of pushing any more funding into Medicaid. The prospects are mixed for most states with regard to Medicaid Expansion under the PPACA. While some states welcome expansion as it theoretically brings a ton of federal money in the form of 100% funding of “expansion”, others are leery, questioning the Federal government’s ability to sustain the funding commitment. Lack of clarity regarding current federal budgets, debt ceiling and entitlement reform only augments state hesitancy to embrace expansion.
I have a schedule or table if you prefer, of 2013 Part B Therapy Rates applicable to common SNF codes. It is applicable as user selects, for the entire U.S. As rates are only available on a “guesstimated” basis right now and somewhat subject to slight modifications, the version is not 100% guaranteed. I do believe that little modification will occur. Anyone with interest in this schedule, please drop me a note (contact on the Author page) or comment to this post, providing a useable e-mail address. I will forward the schedule with applicable directions for use.
With the Holidays fast approaching and me, heading into a break and a brief vacation, the time is right to recap the current health policy landscape. As the title states, now it seems as if the industry is riding on the Healthcare Polar Express; head first into the dark, cold, snowy north.
- Fiscal Cliff: Wow, what a mess. The House has adjourned for the Christmas holiday, leaving the Senate to try to fashion a compromise bill. The key players, namely Speaker Boehner and President Obama are at impasse. As I write, the market has dropped by 120 points. Aside from the tax issues unresolved, the bigger implications of “no deal” are the pending Medicare Part B cuts of 26% (physician payments, outpatient payments tied to the Sustainable Growth Rate formula), sequestration cuts for Medicare of 2%, and a series of PPACA related provisions that raise Medicare premiums and apply new provider taxes on insurance companies/insurance plans. While it is possible that a temporary deal gets one, buying once again a brief reprieve, the tone of settlement of the big issues is alarming. What’s worse is the imbedded economic impact of “no deal” or a “marginalized” deal. Recall, Medicare and Medicaid funding is primarily tied to taxes; payroll and income. I am most alarmed at the implication for Medicaid as any further erosion in economic recovery will put states in a real fiscal vice. Nationalized signs of recovery are just that, nationalized. Important for state budgets and Medicaid is an expansion of GDP growth fertile enough to expand into local, regional and state economies. Right now, a meager 2% GDP growth is akin to treading water for most states. Slower growth or a recession is disastrous as Medicaid ranks are already swollen with chronically unemployed and underemployed individuals.
- Medicare and SNFs: On the heels of last year’s outlay reduction and rate cuts (10%), sequestration cuts set to occur without a Fiscal Cliff compromise add an additional 2% reduction. Making matters worse are two recently released reports from Medpac and the GAO respectively. In November, the GAO reported that 23% of all Medicare SNF claims are fraudulent (upcoding, care billed for and not provided, etc.). Important to note, the GAO review focused on claims from 2009, prior to changes imputed under RUGs IV. Arguably, the current environment is still somewhat ripe with fraudulent claims but my guess is that the GAO is mixing “apples with oranges” in some of its conclusions. The simple fact is that the RUGs III environment and rules gave providers very wide berth via the use of look back provisions, the methodology for minute counting (group minutes divided in whole treatments versus fractional), etc. Earlier in the month, Medpac recommended elimination of the 2013 market basket for SNFs accompanied by a plan to rebase rates for 2014 imbedding an initial 4% payment reduction. Medpac’s conclusion is derived somewhat from data drawn from the GAO but moreover, from reviews of cost reports, etc. that continue to imply fairly substantial Medicare margins for SNFs. Medpac’s reasoning for rebasing is to bring payments more in-line with provider costs (down). The difficulty in making sense of this argument for the industry is that the industry still survives by cost and revenue shifting as the dominant payer source for the vast majority of SNFs is Medicaid; historically a payer that creates a negative margin. Regardless of the track Congress takes, the overall implication is a future with downward rate trend. The industry faces difficult haggling positions given the GAO’s report – tough to argue that rates should remain high when there is a 20 plus percent fraud over-hang.
- Lame Duck Watch: If the Fiscal Cliff issues aren’t enough to feel like “coal in the stocking”, consider that this is also Lame Duck time in the House and the Senate. Lame Duck watch means simply this: Don’t ignore the series of bills and riders to spending continuation legislation proffered by Lame Duck Senators and Congressmen. A classic case is a bill supported by Lame Duck Senator Kohl known as the Painkiller Bill. Kohl first introduced this bill in 2011 and it went nowhere. Its back. The bill on the surface seems reasonable, offering an easier methodology for physicians to provide oral orders for opiates and other pain killers for SNF residents. The objective is to provide more rapid response to patients with chronic and break-through pain. Alas, as is customary with legislative manipulation of this sort, the bill is loaded with potholes that would dramatically increase record-keeping requirements for pain medication administration and impart fines (significant) and penalties including prison time for compliance failure or diversion. Simply put, this should be a non-starter. The issue isn’t to create a different path but to establish a different systemic methodology that would allow the use and encourage with grant funding, automated dispensing. Hospitals have used this system for years but as of today, CMS still requires “unit dose” per resident for SNF patients. With automated dispensing, the delay in care issues are significantly controlled as is the likelihood of diversion as the systems have multiple fail-safes for access and distribution of controlled substances such as opiates.
- Hospital Quality Payment Program: On Thursday, CMS released a schedule of bonuses and penalties for 3,000 hospitals tied to quality of care provided by standard as well as patient experience. The nearly $1 billion in payment revisions will begin in January. The approach or program is known as Value Based Purchasing, incorporating 12 measures of timely and effective clinical care. Examples include the percentage of heart attack patients given anti-coagulants within 30 minutes of arrival at the hospital, the percent of pneumonia patients cultured before started on anti-biotic therapy, and the percent of surgical patients that received an antibiotic within an hour of surgery. In addition, 8 surveyed measures on quality of service were incorporated. Examples include how well doctors communicated with patients, how well nurses communicated with patients and how responsive hospital staff was to patient needs. Any reader interested in knowing all 12 clinical measures and the 8 quality of service measures, drop me an e-mail (contact on the Author page) or comment to this post. I also have information on possible upcoming additions to the program as well as a series of charts and accompanying data on hospital performance. Nationally, 52% of hospitals will receive positive adjustments and 48% negative or payment reductions. The best performing state in terms of percentage of hospitals receiving a bonus is Maine (79%) with an average adjustment of .23%. The worst performing state, if you can call it that, was Washington D.C. with 0 or no hospitals receiving a bonus.
To all my readers, Happy Holidays and best wishes for a prosperous, healthy and safe New Year!
Full of turkey and the trimmings and avoiding any retail outlets, Black Friday seems perfect for a quick synopsis of what is happening with health policy. Fortunately, I’ve maintained a good inventory of “stuff” (not stuffing, though I have an inventory of that too) to cull for content.
- OIG on SNF Payments: This falls into my “news but not really news” category; another report from the DHHS OIG on Medicare overpayments to providers. I have the full report for anyone who would like a copy – just e-mail me (e-mail can be found on the Author page) or comment to this post with a contact. Essentially, what this report indicates is that in spite of repeat changes to the RUGs PPS system and changes primarily to the therapy sections thereto, providers continue to overbill Medicare unnecessarily. The begging question is whether the overpayments depicted are a function of fraudulent activity (intent) or negligence and misunderstanding of proper billing requirements. As I work with SNF providers regularly, I’ll state that elements of both are at play. As I have written before, the system is inherently flawed and thus the incentives align to contribute (greatly) to fraudulent claims. As intensive therapy services calculated by minutes provided are rewarded at significantly higher rate levels, providers seeking to gain (this is what providers do) additional revenues and cash flow, migrate toward care services and patient mix as determined by assessment and coding, that pays the most. The intentionality of certain, possibly fraudulent behavior, arises when “upcoding” and a gap between coding for care level and actual service level, is evident. Per OIG, upcoding accounts for the bulk of the erroneous claims. Thus, in the majority of specious claims, SNFs identified the resident as requiring more therapy than actually provided and documented. As a result of OIG’s analysis of the SNF billing practices, they make the following recommendations.
- Increase and expand the amount of SNF claims reviewed.
- Use CMS’ fraud prevention tools to identify SNFs that consistently bill higher RUG categories and/or have a disproportionately higher level of certain therapy RUGs than regional or national averages.
- Monitor compliance with new therapy assessment criteria.
- Change methodology for determining how much therapy is required by a resident.
- Change to improve accuracy, certain MDS sections/items.
- Follow-up with SNFs that have improperly billed claims.
My comments on this report and “what happens next” are simple. First, SNFs need to heighten their own internal controls and increase their billing knowledge. All too often I talk with administrators ecstatic about their case-mix and their per diem. When I ask these same folks when was the last time they looked at their experience compared to regional levels or national levels, I get too often, the “deer in the headlights” stare. Bottom-line: Audit and benchmark. No single facility should have such disproportionate claim experience and if so, should have a very solid business case as to why, backed by third-party audits that substantiate the difference.
The CMS OIG workplan on SNF overpayments is titled, “Operation Vacuum Cleaner”. Interesting? Not so much. They know this is a huge issue and with the various fiscal issues on the table concerning health policy, a strong vigilance on Medicare overpayments is operative. I have the 2012 OIG Workplan and again, for anyone interested, contact me for a copy.
Where this report leads is to a complete revamp/overhaul of the Medicare payment system for SNFs. In the interim, additional rate rebasing is certain to occur as are heighten assessment requirements and again, more changes to the RUG levels and MDS.
- Fiscal Cliff: A ton of issues are wrapped in the Fiscal Cliff negotiations and among some the most “sticky” are health policy related. Republicans are thought willing to concede on certain tax increase components but in return, are requiring a new look at Obama Care provisions and entitlement spending. Wrapped front-and-center in the Fiscal Cliff debate is the targeted expiration of the current “doc-fix” patch. Without a settlement, the present patch which temporarily derailed required cuts set by the Sustainable Growth Formula (roughly 26%) kick-in January 1. On Wednesday, the CBO issued their opinion on the cost of a one-year fix; $25 million. This number is $7 million higher than an earlier CBO forecast. The fix would forestall the cuts and restore current-level funding for one year. Important to note here is that Part B therapy rates are also tied fo the Sustainable Growth Formula and subject to the same levels of cuts.
This is the classic example of how interwoven health policy and entitlement spending is when viewed against issues focused on overall government spending, deficits and taxation. The real issue here is that the SGR formula is flawed and requires a longterm solution although the same will cost substantially more dollars than any Congress is willing to deal with. What we know is that physicians are already nervous about Obama Care and particularly, the Medicaid expansion components. Cuts to Medicare payments, already viewed by physicians as less than adequate, will only narrow the supply of principally primary care MDs willing to care for any government payer source.
- Shortage of Primary Care Doctors: In light of the last point, on Wednesday the Annals fo Family Medicine published a report that by 2025, the U.S. will require and additional 52,000 primary care physicians to meet population demands. The cause for the increase need per the report is an expanding and aging population coupled with changes in health policy.
This number is interesting but I think a bit misleading. The two major sub-components that need analysis are the need for “geriatric” trained physicians and the number of physicians needed to care for a patient population with a government payer source. I hear too often from the physician community, a strong desire to de-aggregate their practices from Medicaid and Medicare patients, principally due to meager reimbursement and increased regulation. With a major entitlement expansion coming under Medicaid and more states opting to shift administration of their Medicaid plans to manged care insurers, physician participation bears watching.
- 2013: The Year of the Health Plan: I’m already catching a great deal of scuttlebutt about employers seeking to fundamentally alter their present health insurance plans or, drop plans entirely. This comes in tandem with the Obama administration’s release of new rules for health plans and insurers effective in 2013. These rules prohibit insurers from adjusting premiums based on pre-existing conditions or chronic conditions, expand the drugs that must be covered by insurers, specify essential coverage levels on state health exchange plans, and provide flexibility to employers choosing to reward healthy behaviors. As of today, I’ve only glanced at the rules. Suffice to say, and based on what I am already hearing, 2013 will be the year of the health plan and it is already interesting to hear the discussions from trade associations, business groups and employers.
With all of the election news blaring (thank goodness the end is soon here), some important health policy issues have been somewhat lost in the milieu. Below is a quick summary of what has caught my attention as of late (a heads-up for readers).
Medicare/SNF Class Action Settlement: This is profound on a number of levels though I have seen very little analysis on the decision. A nationwide “group” of Medicare beneficiaries and their families, all suffering (some passed) from one or more chronic illnesses, sued the Federal government on a class-action basis alleging denial of Medicare coverage based on the “improvement” criteria imposed by Medicare intermediaries. The gist of the case is as such. In each instance, a SNF resident was admitted meeting the qualifying criteria (three day prior hospital stay, requiring skilled services). In each instance, Medicare benefits were subsequently denied to these residents, even though the skilled service requirement remained, as the resident’s condition stabilized or failed to show improvement. The suit further alleged that in certain cases, care levels diminished or skilled services reduced or ended as the individuals involved, were not able to pay for additional care privately. Briefly, without the presumption of Medicare coverage, the presumption of continuation of skilled services like therapies evaporates, requiring the resident to then pay privately for continuation of service.
The settlement arose when Medicare officials agreed to re-write the claim adjudication manuals to make “clear” that Medicare coverage is only conditioned upon Medicare eligibility, a three day prior inpatient qualifying stay (hospital) and the requirement and delivery of, daily skilled services (as presently defined). Denial of continued coverage should only occur when the skilled service is no longer required based on the resident’s care needs, not based on improvement or lack thereof. Nowhere in existing Medicare regulations is there a requirement for “improvement” yet the standard has been universally applied by Fiscal Intermediaries (Medicare claims adjudication contractors).
The case, coming out of Vermont, is expected to be published soon and the class encompassing more than 10,000 beneficiaries nationwide. The implication is that this group, as well as other beneficiaries, can appeal coverage decisions (where coverage was discontinued) for claims prior to January of 2011 (when the suit was filed). Note: This will limit claim review exposure unless the decision provides greater detail due to Medicare’s 18 month limit for re-filing claims (18 months from denial or service discontinuation if denial is implied). Additionally, many residents in the class will no doubt be dead with closed estates, thereby limiting a reconsideration of coverage claim.
What I don’t know yet is how this decision will impact claims going forward. I am awaiting details on the following questions/concerns.
- Appeal information as applicable from intermediaries.
- Coverage guidance to providers to continue to bill Medicare as long as a skilled service is still required.
- Any RUG guidance and assessment guidance for interpretation of therapy services in particular. Ordinarily, some assumption of continued therapy hinges on documentation of improvement of some type and guidance is necessary to document minutes for other reasons (prevention of decline, safety, etc.).
- When intermediaries will be instructed by Medicare on the “revised” interpretation of coverage.
Medpac Recommends Cut to Part B Therapy Caps: In their November 1 report to Congress, Medpac recommends a 33% reduction to the current Part B Outpatient therapy cap; presently $1,880 reduced to $1,270. Additionally, Medpac is recommending that the Manual Medical Review process expand to all “therapy” services including those provided in hospital outpatient departments, whenever a cap is exceeded. Currently, the process kicks-in at $3,700. Set to expire at year-end is the exception process with hard-caps going into place in January of 2013, unless Congress acts to extend the cap limits and the exception process. Medpac’s report is the first shot at creating a recommended action for Congress prior to the January date. Medpac further recommended, in conjunction with their continuation of the manual review process, a streamlined review approach. Core to this recommendation is a ten-day turnaround and the use of two MAC contractors nationwide for consistency and focus. Anyone who wishes to view the report, e-mail me at email@example.com or leave a comment on this post with your contact e-mail and I will forward it to you.
Medicare Sued for Inappropriate Setting Determination Denials: This one fascinates me particularly as it is the first suit I am aware of implicating Medicare’s RAC contractors and post-care denials. In this case, the American Hospital Association, joined by four other healthcare providers sued HHS and CMS for allowing RAC contractors to retrospectively, deny outpatient claims filed under Part B determining that the care should have been rendered inpatient and the claim submitted via Part A. The suit alleges illegality in denial of payments when cases are retrospectively reviewed. What is interesting is that “inappropriate location” of care is an odd justification for denial, especially when the setting is less costly to Medicare. While it has always been illegal to improperly bill Medicare, including under-billing, rarely have I seen (in fact never) claims denied retrospectively as inappropriate, simply based on the use of a lower cost or alternative setting. Typically, a claim properly billed has never been reversed or denied based on location and certainly not a judgment call such as this appears – seemed more appropriate inpatient. No allegation or substantiation is provided as to whether the care rendered was inadequate, merely wrongly located. Why this case bears watching is that the RAC issues are brewing in terms of the programs costs, its inter-relationships and lack of impartiality, and the incentivized methodology that exists to “recover” overpayments. Denials of this nature and the appeals are incredibly expensive for providers and clearly, the suit incorporates by description, the cost vs. benefit insanity of having to appeal denials of this nature.
Probably the biggest trend as of late is my tardiness in getting these posts out on-time…sorry. My end of the week (last week) got distorted as I needed to attend a meeting with regard to a Medicaid shift in Kansas from fee-for-service to “managed”. As I have been through these conversions or switches before, it’s always interesting to watch provider reaction, the MCO presentations, etc. I hate to be cynical about these transitions but past-experiences suggest that the Kansas experiment will suffer from the same issues I have witnessed in other states – a rather bumpy take-off. States that have a large rural Medicaid population tend to struggle to get networks built and enrollment in-place “timely” (ala Kentucky’s issues).
In one regard, I’m actually glad I’m a tad behind as this weekend produced some rather interesting political news sure to focus debate more directly on healthcare. This said, below is what I am following now and expect to follow as a trend for a while yet. In addition, this week’s Fall Out issues are a tad different as they come from readers and industry insiders and thus, are a shade different “in perspective”.
Politics and Healthcare: Moving on from last week, politics remains on my radar for a few reasons. First, as I admitted last week, I’m a policy and politics “junkie”, fascinated by the mix of fact and fiction and what “sticks” where. Second, there is a great deal of healthcare meat on the table and with the inclusion of Paul Ryan on the Republican ticket, the Medicare/Medicaid political barbecue has just been lit. As a confession, I do know Paul quite well and have worked on past campaigns on his behalf. He’s an oddity in political circles as his substance is far greater than his political profile. So as the gloves start to come off, my watch is how the issues regarding entitlement spending play out. The cold hard reality is this: Entitlement spending on Medicare, Medicaid and Social Security is greater than the total revenue intake of the Federal government from all sources. Healthcare reform via the ACA widens this gap for minimally, the next ten years. After this ten-year period, its anybody’s guess as to where the spending line will level. Embedded in the ACA is a series of cuts to Medicare of $700 plus billion to make the numbers sort-of work. What we don’t know is the impact of Medicaid expansion and how state’s will respond (either in favor of or against). The debate forthcoming is about as stark of a difference in approaches as found in recent political cycles. Romney/Ryan would eviscerate as much of the ACA as possible, opting for a managed, fee-for-service landscape that includes primarily federal block grant funding and privatized initiatives to contain costs and assure access. The ACA as we all know by now, is more directive in its approaches, utilizing governmental policy and insurance plans to garner greater levels of coverage while funding ideal innovations in delivery (ACOs, etc.). I liken the ideological difference to hands-on and hands-off.
Med B Therapy Exception Change: Like many, I’ve been waiting to see how this rolls-out and now we have some answers. CMS has foretold of changes to the current outpatient therapy cap exception process under Part B, moving the process from a “deemed” exception methodology to one requiring authorization from a Medicare contractor (ala prior authorization beyond the cap). Providers will be able to submit exception requests to a designated contractor every 20 days and per the law, receive a decision within 10 days. If no decision is made in the 10 day window, the request is deemed “granted”. Denials with reasons are given to the provider with a chace to re-submit. This first-phase rolls out October 1 and providers can begin processing requests in mid-September. The current cap limit is $3,700, separated between PT/Speech and OT (non-aggregated). On my radar is the industry reaction and how providers will begin to formulate their strategies for attaining exceptions via this new process. I’ll be more interested to see how many exceptions are denied initially, come mid-September/October 1 as I suspect the number to relatively high and variable between contractors. Rarely do these initiatives work as intended and rarer still is uniformity of decisions between the Contractors.
Medicare Cuts and Sequestration: In the heart of the political season, the Obama administration is required within the next 30 days to announce the implementation of a 2% Medicare cut, effective January 1, 2013. This “cut” is the result of current legislative failures (and no legislation presently on the table) to produce a $1 trillion package of deficit reduction. Recall, last year’s Super Committee created a legislative compromise to raise the debt ceiling via an either-or approach: Either find a deficit reduction package or automatic cuts would occur. This is the “sequestration” implication; required action without new legislation. Within the next month, the Obama administration is required to report to Congress its plan for implementing the 2% cuts – Medicaid is not part of the cuts. Congress then must decide to accept the plan or revise the plan. What I am watching is less the substance of the report (where the cuts come from) and more the political drama that will ensue. Congressional dysfunction is engrained in Washington so I am doubtful that a plan revision is even possible. I suspect a piece of legislation that evaporates the issue via bi-partisan delay (the Potomac two-step) until after the elections.
Medicaid Expansion:Back on my radar thanks to one small piece of news from Washington this past week – a kinder, gentler tone on how state’s can or cannot expand and the CMS reaction to such a decision. Essentially, CMS has taken the tone of “doesn’t really matter to us” and states can somewhat take their time. The new “position” came from the CMS head of Medicaid and CHIP. The message is that states can choose to expand as early as January 1, 2014 or delay if desired. Her only message is that delay will result in non-optimized federal funding (additional dollars from the Feds to implement expansion). In effect, the message is take-it or leave-it and we’re fine with either – a stark difference from earlier messages that incorporated threats fof dire funding cuts for states that didn’t get on the expansion bandwagon. The Supreme Court’s decision clearly changed the CMS rhetoric. My watch now is how states decide to craft their bargain with the Feds for FY 2013. As I have mentioned in prior posts, state budgets are a mess and full funding of expansion is tantalizing to some and to others, a scary proposition. Again, I think November’s elections are the make or break point for many “red” governed states.
My Fall Out issues this week come from readers and industry insiders. Here is their take on what they see;
- From a reader and colleague in the Infusion/DME industry in response to my last week’s What’s Trending….To your point on audits within each sector of healthcare, us infusion providers are being hit with CERT, ADR, and now PERM audits. We have decided to stop sending certain claims to Medicare because every claim is triggering a CERT audit. Wonderful effect on my cash flow. The PERM audit put me over the edge…I need to send the medical record to the PERM contractor due to a $1.90 payment. That’s right, one dollar and ninety cents. I called the contractor in Baltimore, and asked if I could just send a check for the money in question, because it will cost more in electricity to print paper copies from our EMR…the person was not amused. They have no sense of humor. Seriously, these audits are putting a major crunch in resource allocation. Each CERT request is generating 30-40 pages of documentation.
- From a colleague who reads and who I often discuss economics and policy issues with (he’s a risk consultant)….
% of the 2012 Federal Budget of $3.8 Trillion
Medicare, Medicaid and Other Healthcare $ .836 Trillion 22%
Social Security .798 Trillion 21%
Defense .722 Trillion 19%
Interest on the Federal Debt .228 Trillion 6% (sub total 68%)
Other Welfare Programs .722 Trillion 19%
Education .152 Trillion 4%
Foreign Affairs .038 Trillion 1%
All Other Government Spending . .304 Trillion 8%
2012 Total Federal Spending $3.800 Trillion 100%
2012 Total Tax Revenues 2.473 Trillion 65%
$1.327 Trillion 35% (Federal Deficit for 2012)
$16.400 Trillion (Total Federal Deficit)
Let’s add up just 1) Medicare/Medicaid, 2) Social Security, 3) Defense and 4) Interest on the National Debt. (22% + 21% + 19% + 6% = 68%) These 4 items total 68% of the Federal Budget.
We could shut down the ENTIRE FEDERAL GOVERNMENT except for these 4 programs and WE STILL DON’T BALANCE THE BUDGET !!!
What are our Presidential and Congressional Candidates saying:
1. Just cut government waste.
2. Just lower taxes and the economy will grow its way out of this fiscal mess.
3. Just control government spending
4. Just tax the a) rich and b) big corporations more
5. Just cut Entitlements and things will be all right. Obviously, these individuals are using such slogans to get elected. What will it take to fix things? This is the magic question. It will probably require all of the following:
a. Significant cuts in Entitlement programs and Defense
b. Tax increases most likely significant increases for all of us who pay taxes.
c. Significant changes/cuts in government employee pension and retiree health insurance benefits.
d. Spending cuts across the board in all other government areas
What about Welfare programs? How much can we cut? Another good question. Cuts will need to be made here too. However, do you want to live in a society where the disabled, sick, aged, poor, unemployed and other disadvantaged individuals live like they do in India, Haiti, South Africa? Is there welfare fraud in these programs? Yes. Is it pervasive and widely abused? I don’t think so.
The medicine to fix this mess will not be pleasant. We all must suffer. No exceptions. The rich, middle class and poor. Government employees including the police, firefighters, teachers and military. Wall Street investors, bankers, doctors, lawyers. Big corporations, small and medium sized businesses. All of us. The trick will be how to do it in a fair and equitable way. Good luck with that.
Will our elected officials have the political will to act before it is a crisis? Unfortunately, there is no evidence of it. There will need to be a crisis.
So, we are basically SCREWED no matter who we elect. There is an old saying “People get the government they deserve.” Needless to say, we deserve the medicine we will be forced to swallow in the coming years for not paying attention to what was happening in Congress, the state legislatures, county boards and municipal council chambers.
And this is only the Federal budget. God help us when all the other levels of government finish with us, i.e. State, County, City, Village, Township. Each of these have their own financial troubles to deal with. Guess how they will fix these? Same song different verse.
- Finally, from a reader and colleague in the hospice industry….What went wrong? Those of us in hospice for the past twenty plus years were kind of like kindergarten teachers; we did it because we loved it and thought what we were doing was noble and proper. We never intended to make a ton of money on caring for the terminally ill and in reality, we never did. We raised money to make ends meet and we never thought of drumming up business by hanging out at nursing homes and telling the nursing home that we could make them money by taking their Medicaid/Medicare residents and putting them on hospice. When we went to a nursing home and took care of someone, it was because the person was truly dying and proof of point, they generally did in short-order. I am truly depressed to see these mega-corps tarnish what I love and think of as the most important service on earth and all because shareholders just want more return. What happened to “care” coming first and profit coming to those who put “care” first?
Until next time and as always, keep the feedback coming and keep the faith!
The failure of the Super Committee to achieve any measure of “go forward” spending reform left unresolved, a whole host of Medicare program spending messes, many of which will rear their ugly heads come January 1. While many lament the Committee’s failure to resolve equitably, what is set to become automatic cuts, the truth of the matter is that the automatic cuts are literally far-off (politically speaking) and unlikely to occur as specified by current law. More problematic at current are issues such as the continuing (sad) saga of the Medicare Physician Fee Schedule. Recall that for the literally the past years, Congress has employed a series of stop-gap legislative measures staving off cuts to the fee schedule. The latest legislative band-aid will expire on December 31 and if not again patched, cuts of 27.4% are set to occur. Additionally, the same formulaic mess that calls for the reduction in physician payments rolls through to other certain providers such as outpatient therapies (Physical, Occupational, and Speech) inclusive of the reinstitution of a hard cap of $1,800 on outpatient therapy charges.
For readers somewhat unfamiliar with the “devil in the details” of this issue, here’s a brief summary. The current system, based on a formulaic provision known as the SGR (Sustainable Growth Rate) enacted in 1997 as part of the Balanced Budget Act. The purpose of the SGR is to constrain the rate of expenditure growth under Medicare for fee schedule related services (physicians being the most prevalent). Under this system, spending is constrained by annual GDP growth, growth in the number of Medicare beneficiaries, inflation in practice costs for physicians and other outpatient providers, and spending required by regulation or law. Weighting these four factors leads to a change (plus or minus) in the schedule of payments that is fundamentally influenced by economic activity or more precisely, changes in GDP. In simplest terms, if spending in any one year exceeds GDP growth for the same period, the formula looks to reign in spending via cuts in future years. As volume is a contributor as is inflation in practice related costs, the issue becomes somewhat of a ratio analysis; the rate of change in one is offset somewhat by the rate of change in the other or others.
In the earliest years of implementation, GDP growth was healthier than programmatic outlays (the target). The net result until 2001 was a series of fee schedule increases, often at rates greater than inflation for the affected year. Since 2001, expenditures have exceeded the growth target (fundamentally GDP growth) and the formula has triggered cuts. With the exception of 2002, Congress has acted to override the required cuts. Each action by Congress, up to 2007, produced a growing negative balance under the SGR methodology, leading to the current forecast of required reductions equalling 27.4%. Given the requirements under current law and the SGR, forecasts for 2013 and 2014 foreshadow additional cuts.
Logical and illogical arguments abound as to why the system has failed so dramatically; perhaps most logical is that payment discussions (increases and decreases) correlate with beneficiary access. Illogical is that payment reductions impacting certain specialties would lead to wholesale access problems for heart procedures, neuro procedures, etc. Most acutely impacted would be primary care access, already a significant problem in rural and distinct urban areas. Additionally, access to other fee schedule providers such as outpatient therapies would certainly be negatively impacted. In the end, Congress has proven unwilling to allow cuts of the current magnitude to roll forward.
As January 1 is rapidly approaching, here’s my insight into what happens next. First the backdrop of reality. This issue is square on the tables of the group (Congress) that proved incapable of finding $1.2 trillion in deficit reduction over ten years. Being honest, finding $1.2 trillion over ten years is akin to finding apples on the ground in large orchard; this isn’t even low-hanging fruit. Further, this is an election year issue during a period where the economy is stuck in near-neutral. Finally, political cover is scarce and the back and forth rhetoric is furious; tough to find cooler heads. The best that will come forward is a quick D.C. two-step; a patch to resolve the immediate fear of cuts followed by other patches that serve the same purpose but in pieces, appear small while continuing the saga of an aggregate amount of dollars that simply, won’t go away. In as much as it is time or has been time long past, to fix this issue, nothing immediate will occur of this sort. For providers, more nail chewing for Christmas.
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.