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Accountable Care Organizations: A Post-Acute Perspective

Suffice to say, I am behind in getting this post “out”.  My best intentions of a month or so ago were quickly dashed by other more pressing commitments. Nonetheless, I did read the proposed regulations as produced by the Department of Health and Human Services/CMS on April 7 and worked through a stack of research on the subject of Accountable Care Organizations; loosely coined by me, the Good, the Bad and the Ugly.

In the purest of definitions, easily lost within the DHHS/CMS proposed regulations, Accountable Care Organizations (ACO) are about improving patient care outcomes and satisfaction while reducing cost or expenditures for care.  At the core of the premise about “why” and “how” an ACO would work in achieving better care, higher satisfaction and lower costs are three key assumptions or “truisms”.

  1. Best practices via algorithms and care pathways exist in sufficient supply, tested and proven, to reduce the variability that drives higher cost and lower satisfaction for a large and growing number of common patient care issues.
  2. Satisfaction is directly correlated to increased patient knowledge and communication, reduced bureaucracy at the provider level (fewer redundant steps) and better outcomes, more directly delivered and/or attained.
  3. Providers, properly incentivized to focus on outcomes and satisfaction will gravitate toward any and all steps and measures that improve outcomes and satisfaction and resultingly, deliver better and cheaper (less costly) care.  The key is developing the right level of incentives that drive provider behavior in the desired direction.

For years, I’ve written and lectured repeatedly that bending the cost curve or lowering the overall costs of health care in the U.S. system must first begin at the core of the issue; the system of reward.  A simple economic axiom defines this best; “what gets rewarded gets done”.  Fundamentally, the U.S. health system has rewarded in the form of payment, procedures, pills, tests, and surgical (or surgical-like) interventions at the expense of prevention and wellness/care management.  In spite of an enormous and growing body of evidence that much of the escalation of costs (steepening of the “curve”) in the U.S. is driven by chronic conditions poorly managed and lacking in early detection and prevention strategies, funding has remained skewed toward treatment practices that are technical and predominantly surgical or interventional in nature.  The result is poor to minimal access for Type II diabetics (as an example) to integrated chronic care programs designed to stave-off emergency room visits, loss of limbs, peripheral vascular disease, loss of vision, etc. while access to the latest imaging technology, interventional cardiac programs and surgery ranges from good to stellar and even drastically redundant in some markets.

Knowing the above and understanding that a fluid and flourishing economy has been built around this system, the belief or premise that one can design and make work effectively, a paradigm shift such as is intended with ACOs is curious at best.  Suffice to say that while I know such a premise makes sense (Accountable Care Organizations), I’m less than certain from my read of the proposed regulations and knowledge of the current system, how incentive realignment will work to first, bend the “cost” curve and second, create a necessary body of invested, at-risk stakeholders willing to place their economic futures (such that they are) in the hands of a governmental half-and-half, moving payment system.  Moreover, the initial investment capital is clearly all provider capital placed at first dollar risk and the shared-savings return proposed, provides a poor return on the capital invested.  This is particularly true for the post-acute elements critical in the formation of a truly functional ACO.

For an ACO at is primordial core to work (achieve the desired outcomes), hospital utilization and the most expensive clinical utilization must be diminished.  Diminution of such care is achieved primarily, via three methods/interventions/actions.

  1. Primary care available and accessible enough to create consistent early detection and provide low-cost interventions that arrest a progressing disease-state prior to an acute event that ordinarily would cause hospitalization.  In the case of Type II diabetics for example, education and monitoring of insulin levels and Ha1c to create optimal therapy and patient knowledge and disease management efficacy that delays and avoids, hospitalization and interventions on a crisis basis.  By simply deferring and/or avoiding, undetected and untreated peripheral leg and foot ulcers, thousands upon thousands of days of hospitalizations for amputations and/or intravenous therapy for infections can be avoided – annually.
  2. Delivering care in lower-cost settings or alternative settings, non-hospital based, nets enormous savings.  As payment today is skewed toward hospitalization and hospital-based care, patients disproportionately receive care, tests, procedures in hospital settings.  A primary example of how skewed the system has been is the artificial and unnecessary three-day prior hospital stay qualifier in order to receive Medicare coverage in a nursing home.  Equally as non-sensical are the present Part B outpatient therapy caps for any non-hospital based and provided therapy.  I could literally list hundreds of payment and care provision inequities but my point is made.
  3. True integration and data sharing among providers must occur and each provider must bear an incremental reward benefit and/or downside risk.  If providers cannot access data fluidly on a patient population and share best practices encompassing steerage to the most cost-effective,  best-outcome sources for care without fear of system reprisal, holes and gaps to effective care delivery at the best price/cost will remain too plentiful.

Taking the above into account, two major obstacles still remain in terms of successful development of an ACO.  The first is patients, now indoctrinated into a system where pills, brands, certain tests, and other non-proven care modalities are expected, nay demanded.  Simultaneous, this same group is famous for varying elements of non-compliance born out of a belief (though untrue) that most anything has a “medical fix” component.  All the best practices and lower-cost alternative settings can’t overcome patient behavior unless and until, patients are part of the risk-benefit system.

The second obstacle, touched on earlier, is the system of reward or the model of risk-benefit.  The ACO core model is one of risk-sharing; gains in the form of varying levels of saving returned to the providers willing to bear “risk” in the form of higher than desired utilization, costs, etc., or outcomes including satisfaction that are below certain pre-determined and desirable levels.  The inherent fallacy within this concept is multifaceted to say the least.

  1. As indicated, patients are a true wild-card; both in terms of behavior and health status.  As the patient remains effectively detached from the risk-benefit equation, behavior is left to chance.  Additionally, health status going into the population on behalf of patients is effectively unknown.  In short, a “ticking coronary time-bomb” may be present (or similarly present) creating a cost and outcome explosion that defeats the opportunity of an ACO to truly deliver effective savings.  The inability in the present regulations to set a path for securitizing against this risk and for truly integrating patients into the risk-reward equation (some element of cost-share broader than present) makes the attainment of long-term savings at a significant level, illusory.
  2. For many providers (or perhaps all) the up-front investments in terms of technology and service accessibility are steep.  This is dramatically so for post-acute providers as the Federal Government refuses to offer any resources for technology investment – not the case with physicians and hospitals.  This is fundamentally illogical as a major element to delivering true savings is via the full use of alternative care settings – lower cost options for care such as therapy/rehabilitation, chronic disease clinics, etc.  What occurs as a result of this enormous “up front” investment is a return on investment profile that is marginal to poor; in most cases (and in all that I have analyzed) below the organization’s cost of capital.  Additionally, the prospective savings return is not fluid or rapid leaving providers with a self-funding equation of producing results, subsidization of investment and cash flow, netting a return that is below any other reasonable and readily available alternatives.
  3. The sharing of incentives is impractically aligned such that the largest sources of current costs stand to lose the most while the post-acute elements stand to gain the least, though as the above occurs, the distribution is far from quid-pro-quo.  Briefly: ACOs begin fundamentally with physician groups and hospitals.  To fully achieve functionality and to meet the objective of better care provided cheaper, other providers core to the care continuum must be brought into the ACO.  Hospitals primarily have invested heavily in the current system of fee-for-service reimbursement, building environments that return the most on investment when heavily utilized on an in-patient and procedural basis.  It is illogical to assume that for most hospitals, voluntarily steering utilization elsewhere to lower cost settings or abating certain levels of utilization altogether in exchange for “shared savings” spread across the ACO players is a winning proposition.  On a similar plane, the same is true for physician specialists.  Interventional cardiologists will be hard-pressed to forego any elements of business financially and in honest reflection, Medicare-age patients are a major (if not the primary) source of patients.  For post-acute providers, utilization should likely increase as their services are more cost-effective but as established, these providers are bit players in the ACO game and while perhaps the most effective element in controlling costs and utilization, not proportionately rewarded.  Their participation for example, is all down-streamed through the ACO.

Forming a post-acute synopsis of the current ACO landscape is as simple as this: Play at your own risk.  There is little for most post-acute providers to gain within the present ACO framework, financially.  All gains are more market and patient-flow related.  The investments in terms of technology are steep and unsupported via government funding.  Similarly, the net margin attainable via an ACO that is at “risk” or participating in shared savings is less than adequate to support a return on capital investment scenario that justifies the up-front costs.  Personally, I would treat ACO participation at this stage as exploratory only; a devotion of only a small investment on-par and an expectation that minimal financial gain will occur, if any.

It stands to reason that some provider elements within the post-acute industry will stand to benefit better than others if for no other reason that they are already aligned from a business perspective to do so. LTACHs could reap significant market share if they can pose as legitimate first-admit options to an acute hospital.  SNFs that are and have been, operating as true transitional care providers with in-house, integrated services could become major partner players within the ACO landscape.  Key however to an SNF’s viability is some reform from three-day prior hospitalization requirements and relaxation/elimination of the Part B therapy caps.  Home health agencies that already have an infrastructure for electronic charting, referrals and a strong physician partnerships and hospital referral/discharge relationships are the most logical post-acute, ACO partners. The ability of a home health agency to manage a more complicated patient directly discharged from a hospital as well as bring into the home, core chronic disease management services adjunct to physician care is an ACO necessity.  As today and for the foreseeable future, ACO realization or not, Hospice will remain only a bit player, if that.  While Hospice is an effective alternative to more costly inpatient care when continued inpatient care and/or other procedural steps are unwarranted, getting patients, their families/significant others, and the physician community in general to openly embrace Hospice early and frequently is not going to occur simply because of an ACO.  Hospice, as I have written before, is a niche’ in the post-acute continuum and nothing within current trends suggest to me that the U.S. health system and patient expectations are moving to a deeper appreciation for or understanding of, the role hospice can and should play.

June 6, 2011 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , , , , | 2 Comments

MedPac Report to Congress: 2012 Recommendations

MedPac (Medicare Payment Advisory Commission) just released its March report to the Congress on Medicare program and rate recommendations for the FY 2012 (beginning October 1, 2011).  The full report is available in PDF form on the Reports and Other Documents page on this site.  Below I’ve provided a summary of the key recommendations contained in the report.

Important to note about this year’s report and the recommendations contained therein is the political context in which this report will be received.  Congress has often been politically unmotivated to take MedPac’s recommendations fully to heart as the same often involves program and payment reform following a path of curtailed spending.  As MedPac was officially created/established as part of the Balanced Budget Act of 1997, a critical element of its charge is to monitor payment adequacy in light of Medicare’s beneficiary’s access to care and the quality of care delivered.  Most notably, MedPac has gradually evolved to an organization that advocates for more aggressive programmatic reforms combined with rate reduction and/or spending reduction.  For routine readers of the annual payment reports (issued in March), the opening tone within the Executive Summary section has grown more pointed regarding Medicare’s solvency issues (lack of sustainability) and the Commission’s view of Medicare and the broader economic impact it has on the global U.S. economy.  Today (presently) within a House that is demonstrably pushing spending reforms and reductions and an overall Congressional environment stuck in debate regarding fiscal reforms that include entitlement reform, MedPac’s report certainly will receive more review and deliberation than in other years.  Similarly, health care is a front burner issue given the politics (anti-reform) that surround the recently passed PPACA, effectively producing a wholesale shift in political power in Washington.  Wrap the Washington political issues with a moribund economy that hasn’t yet established its recovery footing, significant Medicaid deficits across the States, and local political wars focused on labor unions, contracts and unfunded and/or expensive benefit packages (including health care).  Summarized: The ancient Chinese proverb applies, “It is better to be a dog in a peaceful time than to be a man in a chaotic period”.

Opening, MedPac provides a quick context for their recommendations noting that Medicare’s share of the total GDP is expected to rise from 3.5% to 5.5% by 2035.  More important and a point too often missed by economists and analysts is that Medicare’s cost growth is not separate from the larger health care economy as it is directly linked to other cost drivers within the health care system that today, are rising far faster than GDP growth (especially given the current and recent pace of GDP growth).  Overall, including the payroll tax funded Part A, Medicare consumes 18 percent of all income tax revenue.  The CMS Office of the Actuary, taking into account the purported Medicare spending reductions contained in the PPACA (see my last post on the Unraveling of the PPACA for more on Medicare and the PPACA) forecast a slower rate of spending growth – 6% vs. 9% under current law.  Critical to this assumption is the realization of spending reductions totaling $575 billion as well as a more stabilized, normative GDP growth pattern combined with historic levels of employment.

Key to this year’s payment recommendations (FY 2012) is MedPac’s philosophy and charge of balancing equitable payments that maintain or improve access, redistribute payments within a particular PPS sector to improve equity among providers and/or adjust for biases in patient selection and service (the term “cherry picking” applies), correct unusual patterns of utilization (over incentivizing) and to attempt to tie payments to quality outcomes and efficient practices (pay-for-performance).  The report covers 10 PPS sectors of which, I follow and work within 6 primarily.  As a result, I won’t summarize or comment on MedPac’s recommendations for hospital inpatient, hospital outpatient, ambulatory surgery centers, and outpatient dialysis.  Readers with interest in these sectors can download the report from my site page titled “Reports and Other Documents”.

  • Physicians and Other Health Professional Services: MedPac dances through this topic without adding any substantive input regarding physician fees, let alone any other allied health professions with fees tied to the physician fee schedule (outpatient therapy for example).  Primarily the avoidance is due to the political “hot potato” that is the SGR (Sustainable Growth Rate) issue. Per MedPac’s analysis, overall beneficiary access to physician care is good, physicians continue to accept Medicare patients, service volume continues to grow, quality is stable, and payments for service run at 80% of the typical PPO payment for similar care (unchanged from last year). MedPac does note however that some regional problems in terms of access to primary care are present, attributable to moderately low levels of reimbursement (in some cases, half as much as payments to specialists) and the inherent flaws of the SGR.  MedPac comments on the need to reform this reimbursement mechanism but offers no insight into what it may propose, merely that projected fee cuts of 25% in 2012 are untenable and as a result, MedPac will continue to work on developing alternative SGR approaches along with other formulaic options for the fee-schedule.  Their overall rate recommendation is a 1% increase in fee-schedule service related payments.
  • Skilled Nursing Facilities: Per MedPac, Medicare spent $26.4 bilion on SNF reimbursement in 2010 and per their analysis, the majority of indicators examined showed payment adequacy.  Prefacing their rate recommendations, the reports notes that the average Medicare margin for a free-standing SNF was 18% in 2009.  Specifically, MedPac notes that facilities with wider Medicare margins have aggregated more days into higher paying PPS groups, particularly rehab focused groups as opposed to the medically complex groups.  Additionally, provider costs remained relatively stable while rate increases paced above cost inflation. Per MedPac, successful facilities have found ways to have costs well below industry averages, high quality and corresponding high Medicare margins.  As a result of these conclusions, MedPac is recommending no rate adjustment for SNFs for 2012 while recommending continued categorical revisions within the PPS to move payment focus away from rehab to clinical care – more focused on patient care needs.  Additionally, they are recommending quality of care modifiers, providing incentives for high quality providers and creating rate reductions (disincentives) for sub-standard quality such as “avoidable” re-hospitalization.  As required under the PPACA, MedPac is also charged with reporting on Medicaid utilization.  Interestingly, their comments are boiled down substantially, indicating that total Medicaid certified beds have decreased while utilization and spending has increased.  They note that Medicaid margins are negative  and fundamentally, that all non-Medicare margins are negative but total margins for the industry are positive. 
  • Home Health Services: As it has in prior reports, MedPac continues to advise that access is adequate (90% of beneficiaries live within a zip code containing a certified agency), the number of agencies continues to grow dominated by for-profit entities within a limited geography, the volume of episodes of care continue to increase (25% over the period 2002 to 2009), quality measures are fundamentally unchanged from previous years, and the major for-profit organizations have sufficient access to capital.  As in the most recent prior year reports, MedPac notes that the PPS system continues to produce high margins for providers (17%), principally because payments exceed costs and growth in cost per episode remains below the assumptions used in the market basket update.  Using these conclusions combined with a cautionary statement regarding discovered fraud in the industry, MedPac recommends that the Secretary be charged with re-basing home health rates over a two year period, starting in 2013 (October of 2012).  Re-basing of rates would target a reduction in the therapy “incentive”, modulating more rate toward medical care while incorporating a revised case-mix system.  Additionally, MedPac recommends the development of a cost-share for home health, thereby instituting a beneficiary payment for services.  MedPac believes, like in other Medicare post-acute payments, that imposition of a cost-share will charge the beneficiary with more consumer awareness of the benefit and the utilization thereof.  Finally, MedPac recommends that the Secretary charge the Office of Inspector General with enforcement responsibility in areas/regions where fraud has been evident, removing payments, reducing enrollment and de-certifying agencies engaged in fraudulent activity.
  • Inpatient Rehab Facilities: Although a relatively small segment in the post-acute continuum ($6 billion), MedPac is recommending a zero percent increase in IRF rates.  They conclude that access is adequate, quality as supported by improvement at discharge is stable to improving, and as most facilities are hospital based, access to capital is not an issue.  They note that the average margin for IRFs is 8.4%.
  • Long-term Care Hospitals (LTACH): As with IRFs, this segment is relatively small – $4.9 billion.  MedPac notes that in spite of the limited moratorium placed on new LTACH and additional beds in existing facilities (July 07 to December 2012), the number of facilities increased by 6.6%; worked through the exceptions provided within the moratorium. LTACHs are not required to submit quality data to CMS though MedPac reports, based on claim reviews, that readmissions and deaths within 30 days of discharge are stable or marginally declining compared to prior years. Per MedPac, payments between 2008 and 2009 increased 6.4% despite costs increases of 2%.  The average Medicare margin in 2009 was 5.7%.  Within the PPACA, LTACHs are subject by 2014 to a pay-for-reporting program, though “reporting of what” is yet defined.  MedPac also believes that a pay-for-performance element should be introduced.  The recommendation for a rate increase or update for 2012 is zero.
  • Hospice: Per MedPac, hospice services received $12 billion in Medicare reimbursement 2009.  In the same year, hospice use increased across virtually all demographic areas and across beneficiary characteristics. Between 2000 and 2009, the supply of hospices increased by 50% with for-profit organizations accounting for virtually the entire amount of growth.  During the same period (2000-2009), the use of hospice increased from 23% of all decedents to 42% of all decedents with average length of stay increasing from 54 days to 86 days. In 2012, CMS is required to publish quality measures and in 2014, hospices are required to report on these quality measures or receive a 2 percentage point reduction in payment.  For 2012, MedPac recommends a 1% rate update. As in previous reports, MedPac recommends that the hospice PPS be altered to create higher payments for days early in the stay and late (near death) in the stay with lower payments applicable during the middle of the stay.  As stays continue to move slightly longer, this payment system is supposed to reflect more accurately, the intensity and cost of services provided to the typical hospice patient.  MedPac also recommends that the Secretary of HHS investigate the relationships between hospices and nursing homes and the differences in patterns of referrals between nursing homes and hospices. MedPac also calls for an investigation into agency enrollment practices where lengths of stay are unusually long as well as an investigation into the marketing and referral development practices of these agencies, particularly as they pertain to length of stay. This recommendation is unchanged from last year.

March 27, 2011 Posted by | Policy and Politics - Federal | , , , , , , , , , , , , , , | Leave a comment

RUGs IV Here to Stay!

The news we all hoped for came forth this afternoon, wrapped with a big bow just in time for the Holiday season – RUGs IV is here to stay.  The House this afternoon passed a companion version of the bill passed in the Senate yesterday.  President Obama is expected to sign the bill into law shortly.

The legislation calls for $19.2 billion in appropriations to make RUGs IV effective retroactively to October 1, 2010.  In addition, the legislation extends the Medicare Part B therapy cap exception provision presently in place, until the end of 2011.  Without such an extension to the exception process, the Part B therapy caps were set to be automatically reinstated with no exception on January 1, 2011.  As part of the extension of therapy cap exception process, the legislation also staves off pending cuts of approximately 25% in Medicare payments to physicians required by the current sustainable growth formula which drives the physician fee schedule (and related Part B services such as outpatient therapies) under Part B.  Without such a correction to the physician fee schedule, physician fees were set for the significant reduction on December 18 (Congress had already moved the date back to the 18th from the 1st of December).

The implementation of RUGs IV back to October 1 solves significant headaches for SNFs and CMS.  As difficult as it has been for providers to get up to speed on MDS 3.0 and RUGs IV, the process was significantly complicated by the unknown of how the planned RUGs Hybrid would work and whether CMS would seek to recoup potential overpayments from providers as a result of RUGs IV being used temporarily.  Many providers sought to establish liability accounts on their balance sheets for just such an event, even though estimating the liability was somewhat complex due to the lack of solid information regarding the Hybrid groups coming from CMS. 

Having spoken to a number of people within CMS, the implementation of RUGs IV back to October 1 is a true gift.  There were consistent difficulties in getting the Hybrid grouper to function in conjunction with MDS 3.0 and as such, a growing number of inquiries from the industry bombarded the agency expecting more information.  Even more troubling was the prospect of having to deal with payment recapture; a procedural boondoggle CMS was hoping to avoid.  In the end, I am confident that a number of people at CMS are rejoicing this evening.

On a final note, I wish to offer my personal congratulations to my industry colleagues and the trade associations who lobbied for this victory and to my readers, clients and business partners who required that I kept them informed and in many cases, helped me with additional information and of course, thoughtful inquiries that made me stay on top of this important issue.  This policy victory was long overdue but as the saying goes, “better late than never”.

December 9, 2010 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | 1 Comment

Doc Fix Survives, Medicaid Ehanced Match Doesn’t

In another procedural vote on the revamped Jobs bill in the Senate, Democrats fell short of mustering 60 votes to end a Republican filibuster, effectively ending for now, legislative efforts to extend unemployment benefits.  The vote count was 57 to 41 to continue debate.  Dying with the extension of unemployment benefits are a series of pro-business tax cuts, tax increases on domestically produced oil and on investment fund managers as well as the extension of the enhanced Medicaid match provided in the Stimulus bill, set to end December 31 of this year.

In an attempt to keep the bill alive, Senate democrats removed the provision related to Part B/physician fee schedule cuts and crafted a smaller, temporary fix (see my posts from last week on this same subject).  This separate “temporary” patch provides for a 2.2% increase in the Part B fee schedule and delays any cuts to physician fees until November 30.  Prior legislative efforts deferred the fee schedule cuts, pegged at 21%, until June 1 of this year.  This past week, CMS began paying claims incurred after June 1 at the reduced fee schedule rate.  In response to an enormous push-back from physicians and the health care community in general, the House passed this temporary Senate measure, sending the bill to the President for signature.  Assuming the President signs the bill, providers that have submitted claims for services provided after June 1, will have to re-submit their claims to assure correct payment, including the modest increase of 2.2%.

What’s next (as I have been asked routinely over the past two-weeks)?  Is the enhanced Medicaid match extension dead?  Legitimate questions, no doubt.  In brief, here’s my take or EWAG (educated, wild-assed guess).

  • Typically, when legislation such as this stalls, there is a single, two-ton elephant that needs to be circumnavigated or removed from the room in order for things to proceed.  In this case, there are three elephants in the room.  First, and larger in size than the other two, is the upcoming mid-term elections.  The current “tone” in electoral politics is not good for Democrats and decidedly, anti-incumbent, anti-big government, and bail-out weary.  Any legislation that looks-like and feels-like a bail-out is perceived as poisonous by incumbents headed toward a November election date.  Even seats once believed safe, are up for grabs and some, such as Sen. Boxer in California and Sen. Reid in Nevada, are considered bell-weather contests marking a shift in electorate sentiment (assuming losses on the part of Boxer and Reid).  The second elephant is the rising federal debt, now at $13 trillion and climbing.  This elephant is a cousin of the first and the Democrats are beginning to feel ownership, correctly or incorrectly, of  this elephant.  With the EU struggling with an enormous debt load, principally due to burgeoning social welfare programs and a slow economy, economists, the Fed, and investment rating agencies such as Moody’s, are warning that the U.S. debt load could pose the same level of risk to the economy as is present across much of the EU.  In fact, the U.S. debt load is perilously close to the value of the GDP; an indicator of a level of negative economic wealth (more debt than assets).  Saving an economic lesson for later, the rising debt load is potentially crippling in so many ways to a recovering economy (enough said for now).  The third elephant is the moribund U.S. economy, incapable of soaking up large additional amounts of debt and virtually non-responsive to the government’s deficit spending in the form of targeted stimulus.  Simply put: The Stimulus and the continued bail-out packages coming from Washington have done virtually nothing to stimulate recovery while adding billions to the debt level.  Arguably, the instability and the spending levels have hurt the recovery more than helped.  With these three elephants present today in the House and in the Senate chambers, very little prior to November (mid-term elections) can get done and what will get done will be temporary in nature (the doc-fix for example).
  • I’m not sure that the enhanced or extension of the enhanced Medicaid match is dead but it is definitely, on life-support in its current form.  It seems that the tone of this Congress  now is to avoid issues that include big price tags unless such an issue is immediately pressing (the doc-fix) and can be pushed every so slightly, down the road, but just by a bit.  The problem here is that many states are stuck with June 30 fiscal years and/or balanced budget requirements.  For these states, the uncertainty of additional Medicaid match dollars from the Feds requires establishing a plan that includes cuts, reimbursement and benefit levels combined.  The real devil in some cases, is for states that have expanded their Medicaid programs via the use of added match funds through the Stimulus, as the expansion components cannot be cut by law.  The additional funds via the Stimulus bill came with “golden handcuffs”, requiring states that used the funds via expansion, to maintain these services.  In short, Medicaid is a real mess but frankly, that is nothing new given how ridiculous its financing provisions are and how “federal” money hungry the states have become, selling their fiscal stability souls for additional federal funds and then shifting budget problems elsewhere, hoping new or additional federal money would continue, bailing out their current spending sins.
  • The logic of once again deferring the Part B cuts, now to November, is to buy Congress time to craft a permanent solution.  Anyone who buys this rhetoric needs professional counseling.  This issue is nowhere close to a permanent fix as such a fix requires political willpower (non-existent today), a revisit to the recently passed PPACA where the budget numbers are already out of whack, and finally, a commitment to spend new money as part of the solution.  Fixing the problem means abandoning the flawed sustainable growth formula, recasting the actual costs associated with the PPACA (estimates of deficit reduction relied heavily on unsustainable and impractical Medicare cuts), and finding new money within the budget, deficit or not, to create parity and stability within the Part B fee “world”.

June 25, 2010 Posted by | Policy and Politics - Federal | , , , , , , , , , , , , | Leave a comment

Senate Doubles Back on “Doc Fix” Legislation

After a mid-week roadblock was established on a procedural vote all but derailing the American Jobs and Closing Tax Loopholes Act and the integrated provisions that included a “doc fix”, the Senate doubled-back on Friday and passed a separate measure that patches the pending cuts (21%) in the physician fee schedule set for June 1.  The latest temporary measure stalling cuts as required by the sustainable growth formula underpinning the current Medicare reimbursement calculations for Part B services (physician fees, therapy rates, etc.) expired on June 1.  In the interim, in anticipation of another patch to the cuts, CMS directed its fiscal intermediaries to “hold” or pend claims after June 1.  The Senate legislation now must return to the House where as of today, reception as indicated by Speaker Pelosi is not likely to be “warm”.

The Senate’s fix calls for a 2.2% increase to the current fees (non-cut) through November 30 at a price tag of $6.4 billion.  Integral within this temporary measure are funds to not only augment the physician fee schedule but to also impute the same increase to other health care services tied to Medicare Part B such as outpatient therapies.  Come November 30, Congress will have to either have a more permanent solution in-place or additional temporary measures will be required.

Physician reaction was as expected; frustration and mixed anger.  Physicians continue to grow more hostile toward Congress’ strategy of temporary payment fixes, calling for a revamp of the convoluted and antiquated formula known as the “sustainable growth formula”, tying Medicare reimbursements under Part B to economic growth in proportion to overall Medicare outlays.  During health care reform discussions and in the initial Senate version and subsequent House version of the Jobs and Closing Tax Loopholes Act, longer term fixes to the fee schedule were integrated with larger costs.  Politicians from both parties, worried about rapidly increasing deficit levels, systematically gutted these longer-term measures to the point where no legislation addressing the pending cuts was in place until late Friday.

The lengthy delay in addressing the pending cuts of June 1 caused CMS to extend a “hold” on claim adjudication, effectively stalling claims from June 1.  On Friday however, CMS directed its fiscal intermediaries to begin adjudicating claims using the discounted fee schedule.  In short, claims from June 1 will now be processed with a 21% reduction.  CMS’ reasons for starting to pay claims at the discounted level are two-fold: First, longer delays in adjudicating claims will produce a significant back-log in claims, headed into the 4th of July holiday period; and second, the Senate legislation must return to the House for passage and preliminary indications from the House are that passage in its current version is unlikely. Claims can ultimately be re-processed once a permanent (or more lengthy temporary) fix is reached however, such re-processing is neither quick nor without additional work on the part of providers and CMS’ intermediaries.

There is no question that physicians as well as other provider groups are growing tired of Congress’ inability to resolve the Part B fee schedule issues.  With health care reform a less than fully embraced law and policy analysts and economists pushing Congress on rising deficits, the political willpower to address Medicare issues involving “new” deficit spending is almost gone.  In fact, many policy analysts and economists, including myself, have consistently pointed out that Congress lacks the political will to pass along the steep Medicare cuts imbedded in the PPACA and integral to its claim of “deficit reduction”.   The “doc fix” saga is clear evidence of Congress’ inability to live up to the spending cuts it created under the PPACA.

June 19, 2010 Posted by | Policy and Politics - Federal | , , , , , , , , , | Leave a comment

Senate Sets Roadblock on Jobs Bill: Impact is Felt for Doc Fix and Medicaid Funding

Yesterday the Senate, via  a procedural vote, set a roadblock on the continued track toward passage for the American Jobs and Closing Tax Loopholes Act.  The original version, re-crafted by the House to lower the price tag and then sent to the Senate, found limited traction on Wednesday.  Oddly enough, the House version effectively trimmed the original Senate version and yet, even when fiscally re-shaped, it could not garner support in the Senate, the source from which it originated.  My read is that Senators, since the shaping of the original bill, have watched political winds shifting away from support for government bailouts, subsidies, and deficit spending initiatives.

What happened is a bit confusing for people unfamiliar with the parliamentarian rules and procedural machinations of the Senate.  In order for the Bill to come to the floor for a vote, sufficient votes (60) are required to close debate on the legislation.  Without the 60 vote total, debate can continue endlessly and lead into filibuster, effectively killing the Bill as it stands.  Yesterday’s vote showed a suprising lack of support among key Democrats such as Wisconsin Senators Feingold and Kohl.  Republicans were effectively unified in opposition.  As of late yesterday, Senate Democrats scrambled to re-craft yet another, scaled down version that at a minimum, would contain an extension of unemployment benefits and certain key tax measures.

Analyzing the issues, the Bill in its present shape has significant fiscal problems.  First, the diversity of the issues and spending priorities within the legislation create a lack of transparency which today, is politically repugnant to voters.  Second, much of the Bill appears politically as a continuation of federal bail-out spending.  Third, health care reform remains unpopular politically and Senators, wary of the “doc fix” price tag and its ties to an unresolved health care reform matter, don’t want to get any more negative fall-out regarding the costs of health care reform.

The implications for health care at this point are a bit unnerving.  Many states have already laid budgets assuming a continuation of the Medicaid stimulus support, set to end December 31.  Without continuation of the expanded Medicaid match, many states will need to recast budgets, integrating major spending reductions.  Second, the “doc fix” issue also impacts a number of other health care services such as Part B therapy rates which are tied to the physician fee schedule.  (See my related posts regarding Part B cuts and the American Jobs and Closing Tax Loopholes Act).  Without a fix or another delay of the pending cut (21%), physician fees and other Part B services such as therapy will be cut.

My impression is that Congress will scramble for the next week, attempting to unravel the bill and take on certain issues ala carte.  For example, I believe that unemployment benefits will get extended as in Washington, especially for Democrats and their union supporters, failing to do so is political suicide.  I believe Medicaid and the states will get their extended match but perhaps, more incrementally, maybe with an initial extension end date of March 30, 2011.  Finally, I think the “doc fix” issue will get delayed once again; another temporary stay of execution.  The doc fix may be the most politically difficult issue to deal with as its price tag is large and nearly every policy analyst and health care economist point to the need to address the underlying problem of the sustainable growth formula versus the current approach of pushing the inevitable to future dates via current infusions of new deficit dollars.

June 17, 2010 Posted by | Policy and Politics - Federal | , , , , , , , , , | Leave a comment

American Jobs and Closing Tax Loopholes Update

Prior to the Memorial Day recess (holiday), the House passed its re-shaped version of the bill.  The re-shaping primarily involved spending constraints; reaction to wide-spread criticism (public) of current (and recent) Congressional deficit spending binges as well as a realization that fall elections draw ever closer.  Specifically, what the House did was:

  1. Abandoned any additional extension of the added FMAP (Medicaid match) from the Stimulus Bill – deadline remains December 31, 2010.
  2. Took up the “doc-fix” issue separately, passing a two-year fix to the pending cuts (still set for June 1 as the Senate has yet to reconvene and address this issue).
  3. Made the effective date of the RUGs IV implementation October 1, 2010.

What now occurs is the revised legislation heads to the Senate for review, modification, approval, etc.  As the Senate is not set to reconvene until June 7 (another week), the issue (once again) of physician fee schedule cuts and corresponding Part B cuts in therapy, etc. heads into limbo.  Congress has taken repeated temporary measures to stave-off these cuts while it works to a more permanent fix and it is likely, another emergency, temporary “stay” to the cuts will be forthcoming (I doubt the Senate and House will come to agreement on final legislation during the ensuing two to four-week period).  As in the last go around on a “cuts deadline”, CMS has instructed its intermediaries to hold claims open for the first ten days of the month in anticipation of some direction from Congress.

Regardless of the legislative machinations yet to occur between the House and the Senate, real fiscal issues are at play.  The states are in desperate need of continued financial assistance for their Medicaid programs albeit, even a six-month extension of the FMAP will only result in a bandage change applied to a gaping flesh wound.  State budgets are predominantly in a horrible stay of disarray, awash in deficits and limited in their options for additional revenue via taxation.  The slow recovering economy does not foretell an anytime soon switch in fortunes for the states; revenues will continue to lag until jobs and thus, corporate and personal income fortunes reverse.  Medicaid, as I have written before, is an awful shell game.  To garner additional FMAP that the states desperately need requires additional program expansion and spending – funding that the states cannot afford to continue without more federal dollars.  At some point, with the national deficit now over $13 trillion and rising, the Feds will need to pull the plug on all of the deficit spending, “bail-out” programs that are unsustainable (like added FMAP) and the recipients will have to “face the concessionary music”.

The “doc-fix” is and has been, a major policy issue and boondoggle.  The problem is the underlying sustainable growth formula that is used to set physician (and other Part B) reimbursement rates.  Fixing the formulaic issue is what needs to occur but for the time being, adrift in a sea of health policy debacles courtesy of a misguided reform bill that is now law, Congress is effectively hamstrung.  The political peril of allowing physician fees to plummet by 21% is balanced opposite the political peril of additional deficit spending, especially on health care, immediately prior to a fall election cycle.  Health care today is a major political issue and front and center in this issue are claims made that the PPACA (reform bill) would reduce the deficit, primarily by making Medicare more efficient (cuts).  Adding back new monies to physicians and other providers under Part B is fuel for certain economists, deficit hawks, etc., who all publicly denounced the PPACA deficit reduction claims as unattainable, unrealistic (Congress won’t have the nerve to sustain the cuts), and of course, based on funky math (counting savings from cuts while creating new entitlements). 

I believe this may be the shining example of a “political pickle” for Congress…

June 1, 2010 Posted by | Policy and Politics - Federal | , , , , , , , , | Leave a comment

American Jobs and Closing Tax Loopholes Act – HR 4213

Funny title that is rather misleading given the gravity of the health care/post-acute care provisions that are included in this bill.  As is the case in Washington, especially these days, important health care provisions not addressed in the PPACA are coming forward in other bills; particularly bills involving unemployment benefits and COBRA benefits, etc.  Such is the case in this rather large expenditure bill which by title, is aimed at extending unemployment benefits, creating tax deductibility for COBRA premiums and removing a host of tax loopholes or tax deductions as some may call them. 

Imbedded within the bill are a series of important health care related provisions.  Briefly summarized, the provisions are;

  • A six month extension of the additional federal Medicaid match originally provided under the Stimulus bill.  The current added match is set to expire on December 31.  The extension provided under this bill would continue the match through June 30 of next year.  Fundamentally the issue here is the feds trying to provide a softer cushion or landing area for the states given the ramp-up in Medicaid spending that is coming under the PPACA, the current economies of most states (poor) and the harbinger of pending Medicaid cuts most states will require to keep their programs afloat.  While this match is likely a good thing in the interim, recall that it is in effect like giving a crack addict more crack.  Under Medicaid, the additional match comes only with additional state spending; spending that most states cannot afford without the additional federal money.  Unless the federal money is continually extended in some shape or form, the states will likely face the prospect of cutting their Medicaid budgets at some point, regardless of any economic recovery.
  • A provision that staves off any cuts to the physician fee schedule until 2014.  This doc-fix element includes increases in 2010 (for the balance of year) and 2011 with no increase specifically factored for 2012 and 2013 although, if spending on physician care remains (during this period) within Medicare spending limits, an increase may occur.  In 2014, the physician fee schedule would return to the current law based on the sustainable growth formula (per CBO, a cut in 2014 of 30%).  In addition, since Part B therapy rates are tied to the physician fee schedule, the rate cuts that are pending would be automatically fixed (in concert with the doc-fix) and in actuality, increases in rates would be forthcoming.  Physician fee-schedule cuts and the issue of physician fees being tied to the antiquated sustainable growth formula was a matter of contention during health care reform debate.  The House had passed a broad, permanent fix but the Senate failed to act.  The Senate desired something more temporary and less costly.  The final legislation as passed (PPACA) didn’t address the matter at all with the exception of counting the savings from the projected cuts as part of the financing elements that produced the “budget deficit reduction” effect.  In other words, Congress used the projected savings from the cuts as means of creating a positive financial projection from the CBO.  Most policy analysts and economists have claimed all along that one of the significant “risks” with the PPACA positive projections lied with the fortitude of Congress to sustain the significant Medicare cuts contained in the bill.  This measure is likely to create renewed calls that Congress is incapable of sustaining the Medicare cuts and in actuality, and as I have written multiple times before, the PPACA is nowhere close to deficit reducing.
  • The bill also contains a provision requiring CMS to implement RUGs IV by October 1, in concert with the roll-out and implementation of MDS 3.0.  This is a good thing for SNFs.  Without RUGS IV going hand-in-hand with MDS 3.0, there would be no case-mix payment system that matched the new assessment tool.  RUGs III is correlated to MDS 2.0. The end result would likely be comedic and tragic all at the same time as SNFs would have to complete the new MDS and try to correlate payment back to a case-mix system that didn’t match the new assessment tool.  I, and others, envisioned payment snafus abundant and the work to sort it out come RUGs IV roll-out in 2011, the responsibility of the SNF.

The Apex Healthcare E-Newsletter (my organization’s newsletter) for May was just released and posted yesterday and in this issue you can find additional information regarding this topic (the physician fee schedule fix and RUGs IV)

May 21, 2010 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , | 1 Comment

Part B Therapy Cuts Delayed to June 1

As a follow-up to a post from last week regarding pending cuts in Part B therapy rates, last evening the House passed a bill that the Senate had passed earlier in the day, included within is a provision to delay the pending cuts to the physician fee schedule until June 1.  The provision is tucked within a broader bill that extends COBRA subsidies and unemployment benefits to long-term unemployed individuals.  The provision covers the period from April 1 to June 1.  A prior measure, tucked into a jobs bill, delayed the cuts until April 1.  Congress was on recess for the Easter Holiday, returning this week.  It was expected that upon return, Congress would institute another temporary fix, pushing the reduction out for at least another month; in this case, two months.

The rates for Part B therapy are tied to the physician fee schedule which is targeted by law, for a 21% reduction.  The fee schedule formula is a sore issue for Congress and physicians both, at times for opposite reasons.  In periods of economic expansion, the annual inflation mechanism built into the formula can adjust the fee schedule dramatically upward, in excess of consumer inflation.  In periods of economic contraction, the formula produces dramatic cuts, such as the case set for 2010. (1)  Congress has sought for years to amend the economically contrived formula that produces such wild swings but has failed to find a middle ground approach that physicians can agree upon.  During the debate over health care reform legislation, fixes to the fee schedule problem were imbedded within inital legislation passed by the House as a permanent solution and manipulated by the Senate in a more limited method in its version.  The real crux of the issue boiled down to the costs associated with a permanent solution, estimated at $250 billion or more.  With little price-tag wiggle room as reform became final in the Patient Protection and Affordable Care Act, the fixes to the physician fee schedule dilemma moved to a side issue.  Given that the Part B therapy rates are mired within the fee schedule issue, the same fate of potential cuts also remained unaddressed at the time the President signed the final reform legislation into law.

The temporary delay in cuts, now set to sunset on May 31 only moves forward the same damning set of political issues.  Congress and the President are trying to commit to a reform mantra that is “savings” driven.  As the political landscape is clearly divided and mid-term elections loom closer, additional unfunded spending is the last element any “up for re-election” politician wants to come close to.   Congressional Democrats have crafted a middle-ground approach that would delay the cuts to October 1 (the start of the new federal fiscal year)  or perhaps out into 2015, freezing Medicare rates for the duration.  Physicians, preferring a complete revision to the formula and deficit hawks, preferring to let the reductions occur in large part, oppose the Democrats approach.

Tackling the funding and the fee schedule/Part B issue separately as a single new piece of legislation, in my estimation, won’t occur this year.  What I believe is likely to happen is that a longer term fix, perhaps until the end of the year, will get tucked into another broader spending bill, delaying once again, the core problems associated with the fee schedule and Part B.

(1) The physician fee schedule increases are tied to an economic sustainability formula that applies the Medicare Economic Index to a target called the Sustainable Growth Rate.  Essentially, the Index is a measure of inflation designed to reflect the costs physicians face with respect to their practice and to wage levels.  The Growth Rate is calculated based on medical inflation, the projected growth in the economy and the projected growth in the number of Medicare fee-for-service beneficiaries plus any changes in rules, laws or regulations as applicable.  Congress has tinkered with the application of this formula, freezing the implementation of cuts at 0% , most recently through March 31, 2010.

April 16, 2010 Posted by | Assisted Living, Home Health, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , | Leave a comment

Part B Therapy Rate Reductions Return

With Congress on recess, the temporary extension of the Part B therapy rate cuts ended on March 31.  As of today, with Congress still on “holiday”, the Part B therapy rate cuts remain in effect.  Best knowledge has it that Congress is working on another temporary extension that would retro to April 1 and last through April 30.  When President Obama signed the Patient Protection and Affordable Care Act in March, the exception process to the Part B cap was extended through the end of 2010.

Medicare Part B therapy rates are directly tied to the physician fee schedule set for a 21% fee reduction in January.  Congress while muddling through health care reform, has passed a series of temporary patches to stave off the cut.  The belief is that a more permanent fix to the physician fee schedule issue is “in the works” however, the cost of such a fix is an issue.  The House passed a fix in late 2009 but the legislation died in the Senate.  The Senate has been less inclined to address a permanent fee schedule fix fearing the price-tag would produce additional political damages during a period of existing unrest regarding the health reform bill and the rising debt levels.  Additionally, and not without a tremendous amount of political foresight, the Democrats and the President left the fee schedule fix on the side-lines during health reform passage fearing that its sizeable price tag ($250 to $500 billion depending on the scope and permanency of the fix) would push the CBO score to the wrong side of neutral.  In summary, the physician fee schedule issue trumps the Part B therapy rate issue and thus, in typical Washington fashion, both hang in legislative limbo.

For now, CMS has indicated that it is willing hold claims pertaining to services under the fee schedule for ten days; from April 1 forward.  CMS believes that this temporary hold is better than adjudicating claims concurrent with the existing law (cut in effect) and then having to re-adjudicate another submission once Congress, upon their return on the 12th of April, passes another temporary extension.  Per CMS, this will not impact provider cash flow as clean claims (electronic) are not paid prior to fourteen days.  For any claims previously tied-up in limbo during the last period prior to the exception grant (signed by the President on March 2 as part of a “jobs’ bill) backdated to January 1 and ending March 31, CMS has instructed facilities to re-submit claims to the regional contractor adding the KX modifier.  In effect, the ” claims limbo” that occurred for the period between January 1 and March 31 should be cleaned-up by now for CMS and their regional contractors.  Facilities should be on top this and getting their claims properly modified, submitted and promptly paid.

Stay tuned for what happens after Congress returns on the 12th and what the lay of the land looks like post April 30th – the likely deadline for the next temporary extension.

April 7, 2010 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , | 1 Comment